The Financial Conduct Authority (FCA) has this morning published tough new rules on the marketing of cryptoassets, required to protect UK consumers by clarifying the risk of investing in digital assets.
The new rules on marketing cryptoassets follow extensive FCA research provided to the Government for the consultation on the ‘Future Regulatory Regime for Cryptoassets’.
From 8 October 2023, firms marketing cryptoassets to UK consumers will need to introduce a mandatory cooling-off period for first-time investors.
The cooling-off period is intended to give potential investors adequate time to reconsider their investment carefully and is aligned with a similar rule change proposed in CP22/2 that mandates a 24-hour cooling-off period from the moment the consumer requests to view the Direct Offer Financial Promotion.
“The rule reinforces the FCA’s commitment to ensuring that investors are informed and aware of the risks associated with their investments,” the authority explained.
Further restrictions will see ‘refer-a-friend’ promotions prohibited, which is imposed to strengthen existing FCA rules on the marketing of ‘investment incentives’ which cannot be promoted as ‘shareholder benefits’.
Crypto firms will now also be required to ensure that potential investors have the necessary knowledge and experience to invest in crypto. They must put clear risk warnings in place and ensure all promotional material is clear, fair, and not misleading.
The FCA advises firms “to modify prescribed risk summaries to avoid misleading or irrelevant information”, but any such divergence must be adequately recorded and kept up to date with market developments.
The FCA’s new rules come into effect amid growing popularity of crypto investments among UK consumers. The FCA’s research shows that estimated crypto ownership has more than doubled from 2021 to 2022.
Sheldon Mills, Executive Director, Consumers and Competition, emphasised the importance of making an informed choice when investing in cryptoassets:
“The crypto industry needs to prepare now for this significant change. We are working on additional guidance to help them meet our expectations.
“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.”
Concluding its update, the FCA underlined that it new cryptoasset rules were consistent to its approach for regulatory high-risk financial assets, in which it prioritises the “prevention of harm, raising standards and promoting positive change.”
The policy statement on the marketing of cryptoassets should be followed by consumers, FCA approved cryptoasset businesses, overseas firms, crypto businesses registering with the FCA, marketing agencies and trade bodies.
Su Carpenter, Director of Operations at CryptoUK, expressed reservations over new cryptoasset regulations, despite acknowledging the necessity of consumer protection measures.
As such CryptoUK has expressed concern over potentially restrictive rules, stating: “The regulations could become overly restrictive, given the limited organisations meeting the criteria for approving financial promotions.”
Responding to the FCA, Carpenter raised concerns about disproportionate barriers potentially favouring authorised firms, to the detriment of UK-based organisations and hindering competition – “The solution could unfairly concentrate market power, possibly encouraging unauthorised firms to operate outside the UK.”
A final concern was raised on the cooling-off period’s proposed duration, in which CryptoUK has urged the “for an evidence-based rationale, affirming
CryptoUK’s commitment to maintaining industry growth within a safe, competitive environment.
“We aim to foster a competitive environment for safe industry growth and innovation. We’ll collaborate with our members in responding to the consultation,” she concluded, reaffirming CryptoUK’s commitment to maintaining industry growth within a safe, competitive environment.