Crypto firms that want to market their products in the UK will need to introduce new measures to protect consumers from rogue operators, including a cooling-off period for first-time buyers and an end to “refer-a-friend” type incentives, under new regulations to be imposed later this year by the Financial Conduct Authority (FCA).
The FCA – which has been handed the remit for regulating cryptoasset promotions under new government legislation – said the package of measures was designed to ensure that anybody getting into crypto understands the risks, and binds cryptoasset firms to ensure that buyers have the appropriate knowledge and experience. They must also put in place clear risk warnings and ensure their adverts are transparent, fair, and do not mislead.
“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice,” said the FCA’s executive director of consumers and competition, Sheldon Mills.
“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.
“The crypto industry needs to prepare now for this significant change. We are working on additional guidance to help them meet our expectations.”
The FCA said the time was right to act, citing research that estimates ownership of cryptoassets in the UK doubled from 2021 to 2022, with about 10% of people now thought to own some kind of asset.
Its approach to regulation will be broadly consistent with rules introduced last year to tackle misleading financial adverts – and also supports commitments laid out in the FCA’s 2023/4 business plan to reduce and prevent harms, set and test higher standards, and promote competition and positive change.
Su Carpenter, operations director at crypto trade body CryptoUK, said that appropriate consumer protections, particularly in regard to measures to ensure better communications in financial promotions, were to be encouraged.
“However,” she said, “we do ask that any regulation also empowers consumers to invest and transact in cryptoassets safely and confidently, while keeping in mind that there are multiple additional use cases for this technology outside of just investments. These would also be subject to any restrictions on providers promoting their technology and services.
“The requirement that all approvers of financial promotions have an understanding of cryptoassets and have permission to act as an approver also has the potential to introduce an overly restrictive regime, based on the incredibly small number of organisations which would meet that criteria for approver status.”
Carpenter additionally highlighted concerns that the regulations may introduce disproportionately restrictive barriers and create an unbalanced environment, concentrating market power for some and encouraging unauthorised firms to operate from outside the UK, putting those that play by the rules at a disadvantage and potentially undermining consumer safeguards.
“We want to encourage a competitive and equal environment for the cryptoasset industry to continue to grow and innovate safely, while operating within appropriate safeguards and offering education and information to all consumers, and will be working with our members to respond to the consultation with recommendations to help ensure this outcome,” she said.
Additional guidance to set out the expectations placed on cryptoasset advertising in the UK will now go into a consultation period, which will last until 10 August.
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