FCA to tighten promotion rules for high-risk and crypto businesses

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The Financial Conduct Authority (FCA) has released plans to end misleading advertising of high-risk companies and cryptocurrency.

A consultation on proposals to strengthen financial promotion rules runs from 19 January to 23 March 2022. It is part of the FCA’s consumer investment strategy, which aims to address consumer protection issues , market integrity and competition.

FCA figures show that in June 2021, around 2.3 million people in the UK were thought to own a crypto asset, up from 1.9 million in 2020. But understanding cryptocurrencies is actually down, and some users may not fully understand what they are buying.

An Opinium survey, published by the FCA in October 2021, showed that more than three-quarters (76%) of respondents felt a sense of competitiveness when putting their money into an investment, wanting to beat their personal best as well as the returns of friends. , family and acquaintances. More than two-thirds (68%) compared it to gambling.

Only one in five respondents (21%) planned to hold their last investment for more than a year, and less than one in ten (8%) for more than five years. This is despite the fact that 60% of respondents say they prefer more stable returns.

The majority of those who bought currencies or crypto-assets (57% and 69% respectively) mistakenly thought these were regulated by the FCA.

A case in which a campaign promoting crypto assets was banned by the Advertising Standards Authority featured advertisements for Arsenal Football Club “fan tokens” which did not clearly show that the “token” was a crypto asset .

Chancellor of the Exchequer Rishi Sunak said: “Crypto-assets can offer exciting new opportunities, giving people new ways to transact and invest – but it’s important consumers don’t get confused. not see products being sold with misleading claims. We ensure that consumers are protected, while supporting innovation in the crypto asset market.

The consultation outlines the government’s plan to bring the promotion of crypto-assets within the scope of financial promotions legislation. This will subject them to FCA rules in line with other financial promotions such as stocks, shares and insurance products.

“This will balance the desire to encourage innovation with the needs to ensure that crypto-asset advertisements are fair, clear and not misleading,” the guidance states.

Although this new proposal relates to advertising and therefore does not affect existing anti-money laundering legislation, many largely unregulated crypto providers and high-risk businesses could find themselves covered by the new advertising rules. For many, this may be their first time dealing with regulators.

The FCA has now registered 31 crypto firms, with many more applying. From January 2020, companies carrying out specific crypto-asset activities in the UK must comply with the amended Money Laundering, Terrorist Financing and Transfer of Funds (MLR) Regulations 2017. Under this regime, crypto-asset businesses engaged in certain activities are required to register with the FCA.

Next steps

The government intends to put in place a six-month transition period from the finalization and publication of the proposed financial promotion order scheme and complementary FCA rules.

The publicity guidelines complement broader proposals on crypto assets and stablecoins in the UK, outlined in a 2021 government consultation on a regulatory framework for stablecoins.

Meanwhile, other countries are also trying to regulate cryptocurrency listings. In January, the Spanish National Commission for the Securities Market (CNMV) published new guidelines, which will come into force on February 17, 2022, according to which all crypto advertisements must include the disclaimer: “Investments in crypto-assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost.

The CNMV claims that this will ensure that advertising of crypto products provides content that is true, understandable and not misleading. “This is particularly relevant in the area of ​​crypto-assets as the lack of comprehensive regulation is a challenge for investor protection,” he said in a statement.

For cryptocurrency and high-risk businesses, these new metrics are another indicator of the direction in which regulators are heading. It also provides an opportunity for those already registered with the FCA to demonstrate their compliance to customers and build their reputation.

You can learn more about the latest developments in the world of crypto, financial crime, and regulation at the third annual Comply Advantage Conference on February 3. Reserve your spot today.

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