Home » New Rules on Marketing Cryptoassets: Enhancing Consumer Protection
The Financial Conduct Authority (FCA) has recently introduced tough new rules for the marketing of cryptoassets to UK consumers. These regulations are aimed at enhancing consumer protection and ensuring that individuals have a clear understanding of the risks associated with investing in cryptocurrencies. The FCA’s approach follows government legislation to bring crypto promotions under the regulator’s remit.
Growth of Crypto Ownership and the Need for Regulation
Recent research conducted by the FCA has revealed a significant increase in the ownership of cryptocurrencies. The study found that the estimated ownership of cryptoassets has more than doubled from 2021 to 2022, with approximately 10% of the surveyed individuals stating that they currently own crypto. This surge in popularity has prompted the FCA to take action to protect consumers from potential financial harm.
Introducing Cooling-Off Period and Clear Risk Warnings
Under the new rules, firms marketing cryptoassets to UK consumers will be required to implement a cooling-off period for first-time investors. This means that individuals entering the crypto market for the first time will have a designated period to reconsider their investment decision without any financial repercussions. This cooling-off period aims to prevent impulsive investments and provide individuals with an opportunity to reassess their risk appetite.
In addition to the cooling-off period, clear risk warnings must be included in all marketing communications related to cryptoassets. These risk warnings will highlight the volatile nature of cryptocurrencies and emphasize that investing in these assets carries a high level of risk. The FCA expects firms to ensure that their advertisements are fair, transparent, and free from any misleading information that could potentially deceive investors.
To further protect consumers, the FCA has also banned the use of ‘refer a friend’ bonuses in the marketing of cryptoassets. These bonuses often incentivize individuals to promote cryptocurrencies to their friends and family, without providing a clear understanding of the associated risks. By prohibiting these bonuses, the FCA aims to prevent the spread of misleading information and encourage responsible marketing practices within the crypto industry.
The FCA has outlined specific criteria for firms and individuals who are authorized to market cryptoassets to UK consumers. Financial promotions relating to qualifying cryptoassets may be made by FCA-authorized persons or registered persons, as required under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Firms falling within these categories must ensure compliance with the FCA’s rules and guidelines regarding the marketing of cryptoassets.
Exemptions and Disapplication of Certain Promotional Exemptions
While there are exemptions for high net worth individuals and self-certified sophisticated investors in the promotion of certain investments, these exemptions do not apply to financial promotions relating to cryptoassets. The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 has specifically disallowed these exemptions for communications related to qualifying cryptoassets. This ensures that all marketing communications regarding cryptoassets adhere to the FCA’s regulatory framework.
Additional Guidance and Consultation
To provide further clarity and support to firms marketing cryptoassets, the FCA is in the process of developing additional guidance. This guidance will outline the expectations for firms communicating crypto financial promotions and will ensure that these promotions are fair, clear, and not misleading. The FCA has invited industry stakeholders to participate in a consultation process to provide their input and feedback on the proposed guidance.
The FCA’s efforts to regulate the marketing of cryptoassets align with the broader international regulatory landscape. Regulators around the world are recognizing the need to establish frameworks that protect consumers and ensure the integrity of financial markets. The recent legal actions taken by the US Securities and Exchange Commission against major cryptocurrency exchanges highlight the global focus on regulating the crypto industry.
Balancing Consumer Protection and Innovation
The FCA acknowledges the importance of promoting innovation within the digital coin and blockchain space while safeguarding consumer interests. The introduction of these new marketing rules reflects the FCA’s commitment to striking a balance between enabling innovation and protecting individuals from potential financial harm. By implementing stringent regulations, the FCA aims to foster a safer environment for individuals to engage with cryptoassets.
146 Notifications Sent Out by FCA in First Day of Cryptocurrency Advertising Rules Enforcement
Legislative modifications that put cryptoasset promotions under our authority are now implemented.
On the initial day of the new rules, our organisation published 146 notifications about cryptoasset advertisements.
It is anticipated that businesses such as social media sites, app stores, search engines, domain name registries and payment companies will take the warnings we have given into account and do their part to safeguard British shoppers from unlawful promotions.
Before investing in crypto, it is advisable for customers to consult the Warning List to learn if any companies’ promotions may be violations of the law. This list will enable consumers to make an informed decision by having complete knowledge of the promotion.
Our strategy consists of a risk-centered philosophy, therefore not all organizations with potential cause for concern will be immediately added. This compilation will be regularly renewed as we detect firms that are illegally publicizing cryptoassets and are not responding to us cooperatively.
It is essential to reiterate that investing in digital currencies carries a significant amount of risk and individuals should be aware that they could potentially lose all their money.
The FCA’s tough new rules on marketing cryptoassets demonstrate its dedication to safeguarding consumers in the rapidly evolving world of cryptocurrencies. The introduction of a cooling-off period, clear risk warnings, and the prohibition of ‘refer a friend’ bonuses aim to empower individuals with the necessary information to make informed investment decisions. As the crypto industry continues to expand, it is crucial for regulators to adapt and establish robust frameworks that promote consumer protection and foster responsible practices.
Following the announcement of the new rules, the FCA will publish a Guidance Consultation to provide further clarification on the expectations of firms communicating cryptoasset financial promotions to ensure promotions are clear, fair and not misleading.
The new rules on promoting cryptoassets follow extensive work with the Government on their consultation on the Future Regulatory Regime for Cryptoassets and collaboration with international counterparts and the wider industry.
Prior to the FCA’s remit including financial promotions for crypto products and services, the ASA had banned several crypto firms’ promotions for being misleading and irresponsible. For example, Luno’s out of home billboards told people it’s time to buy Bitcoin without a clear risk warning. Meanwhile, Arsenal Football Club’s promotion of its fan token with partner Socios on its website and Facebook was deemed by the ASA to have trivialised investing in crypto. The FCA will continue to work with the ASA. Please contact the Press Office for images.
Under the new rules, firms promoting crypto products or services will need to include a clear risk warning such as: ‘Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.’