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FCA proposes strict guidelines for crypto advertisements, bans incentives to invest in crypto

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(Kitco News) - The Financial Conduct Authority (FCA), the U.K.’s top financial regulator, has published its new policy position on the advertisement of cryptocurrency services in Britain, detailing new stricter guidelines that advertisers and cryptocurrency exchanges will need to abide by in their promotions.

The new policy position follows the release of a consultation paper in January 2022, which sought to classify digital assets as “restricted mass market investment.” Applying such a designation would allow them to be mass marketed to U.K. customers, subject to certain restrictions, and require that all promotional materials are fair, clear, and not misleading.

“The restrictions proposed included: clear risk warnings, banning incentives to invest, positive frictions, client categorization requirements and appropriateness assessments,” the FCA said.

In addition to the new guidelines for advertisements, which are set to go into effect on Oct. 8, all companies that offer crypto services in the U.K. are mandated to implement a “cooling-off period” for first-time investors. The regulator has also prohibited the use of “refer a friend” bonuses by firms in the sector.

“The new rules mean crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto,” a press release from the FCA said. “Those promoting crypto must also put in place clear risk warnings and ensure adverts are clear, fair and not misleading.”

“If firms intend to continue marketing to UK consumers once the regime comes into force, they must consider how they will use to lawfully communicate their promotions and how they will meet the relevant requirements of that route,” the regulator said. “We will take robust action against firms breaching these requirements. This may include, but it is not limited to, requesting take downs of websites that are in breach, placing restrictions on firms to prevent harmful promotions and enforcement action.”

According to Sheldon Mills, executive director of consumers and competition at the FCA, while the decision to purchase crypto lies with individuals, research shows that many express regret over impulsive decisions. “Our rules give people the time and the right risk warnings to make an informed choice,” he said.

“Consumers should still be aware that crypto remains largely unregulated and high risk,” he added. “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.”

FCA research shows that crypto ownership in the U.K. has more than doubled from 2021 to 2022 and this figure is expected to increase in the years ahead.

Mills noted that the new regulations on the promotion of cryptocurrencies are consistent with the rules introduced by the FCA in 2022 and are designed to tackle misleading financial advertisements of high-risk investments.

U.K. Parliament looks to increase its regulation of foreign crypto entities in the wake of the FTX collapse

The updated policy also supports the FCA’s three core commitments laid out in their 2023/24 business plan to reduce and prevent serious harm, set and test higher standards and promote competition and positive change.

The public has until August 10 to provide comments on the proposed expectations of firms advertising crypto to U.K. consumers. Consumers who invest or are considering investing in cryptoassets, businesses looking to register as cryptoasset providers with the FCA, overseas cryptoasset firms marketing to U.K. customers, authorized firms that are considering communicating or approving cryptoasset financial promotions, and trade bodies for the cryptoasset sector are encouraged to weigh in on the policy proposals.

The FCA first moved to implement regulations to combat deceptive advertisements for high-risk investment products in August, but the measures did not include cryptocurrencies. In January, the regulator announced that it was looking to amend the existing measures to include digital assets, meaning they would be subject to the same rules that apply to stock and insurance products.

Today’s announcement is the follow-through with this goal and is meant to bring crypto advertisements into alignment with the restrictions implemented last year for promoting high-risk investments.

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