The UK’s financial watchdog plans to tighten the rules for advertising high-risk investments as it prepares to take over responsibility for cryptocurrency promotions, raising further questions over how digital asset firms will be able to market their services.
The Financial Conduct Authority on Wednesday proposed a shake-up of the rules pertaining to selling risky investments to the public, responding to “rapid growth” in risk-taking during the Covid-19 pandemic.
“Too many people are being led to invest in products they don’t understand and which are too risky for them,” said Sarah Pritchard, executive director of markets at the FCA.
The draft rules include details of how the financial regulator plans to govern adverts for cryptocurrencies after the Treasury on Tuesday said it would seek to add digital token promotions to the FCA’s remit.
The UK crypto crackdown follows a series of moves to boost consumer protections concerning advertising in the fast-growing market for digital assets in jurisdictions including Spain, Italy and Singapore.
The rules for crypto in the UK will ban payments to new customers who sign up or refer their friends, toughen the wording of risk warnings on adverts and tighten rules for how promotions are approved before publication.
Last year, the UK markets regulator estimated that 2.3m people in the country owned some crypto assets. FCA research found that consumers who bought tokens based on adverts were more likely to regret their decision.
The FCA also plans to revise its marketing restrictions for retail investors across other categories of high-risk investments, such as peer-to-peer lending and minibonds.
Among the package of measures are plans to “improve” risk warnings attached to ads, which at present often feature the wording: “capital at risk”. An example of the new warnings published by the regulator reads: “Don’t invest unless you’re prepared to lose all your money invested.”
The FCA also wants to see online adverts provide links to more detailed risk information, and impose 24-hour “cooling off periods” before customers can act on ads in certain situations.
The regulator plans to publish final rules this summer after a consultation period, although the Treasury said its new approach to crypto would also require legislation in Parliament.
FCA chair Charles Randell has expressed his frustration at not being able to act on crypto adverts in the past, particularly high-profile campaigns on London public transport. “As I go around London and see things on the sides of buses, the first thing I do is ring the office asking, ‘What can we do about this?’,” he said at the Treasury select committee in December.
Placing crypto adverts under the FCA’s oversight will mean that most will need to come from a company authorised by the FCA or Prudential Regulation Authority, or else be approved in advance by an authorised group.
The regulator on Wednesday signalled that even authorised companies will not have free rein to sign off crypto ads. The FCA said it wants to “ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered”.
The statement will add to doubts expressed by legal experts and crypto industry representatives about whether some crypto promoters will be able to find FCA-approved firms to check their advertising.
Ian Taylor, director of CryptoUK, the industry group, on Tuesday said there was a “lack of clarity” over who could approve ads and how the system would work in practice.
Hayley Brady, partner at law firm Herbert Smith Freehills, said putting crypto under the FCA’s jurisdiction “will certainly result in less cryptoasset adverts being seen across the UK”.
