Financial news

Crypto marketing has long been a point of contention. Many exchanges and platforms implement ‘refer a friend’ incentives and promise top-end security, yet there have been various examples of consumers being let down by their custodians. To ensure this doesn’t happen again, the Financial Conduct Authority (FCA) has set up new crypto marketing standards in the UK.

The FCA has made it clear to crypto firms that marketing must be “clear, fair and not misleading”, which will in turn protect UK investors. Cryptocurrencies are extremely volatile. As a result, they can often be very damaging investments if people are unaware of the market. Despite this volatility, accessing crypto investing is very easy, so in order to protect consumers and avoid them being taken advantage of, exchanges must adhere to the new rules.

The new rules will be put into place on 8 October 2023, although firms can apply for an extension to implement certain changes, which will give them until 8 January 2024. This application can be made if greater technical development is needed to comply with the rules.

The FCA has been vocal about introducing regulations in the crypto sphere for over a year. Especially since rules for other high-risk investments have already been introduced. After all, crypto is by all accounts, a high-risk investment. This ensures consumers are protected in every way they look to invest.

“It’s clear the FCA recognises the damage that can be done to overall investor confidence when such high-risk investments are bought by people who seem woefully unaware of the risks… but at the same time it doesn’t want to quash innovation in the digital coin and blockchain space.’’ – Susannah Streeter

New implementations

One of the new changes that the FCA is introducing is a 24-hour cooling period. This involves giving new consumers time to back out of an investment if they get cold feet within a certain time period.

In 2022, the FCA required firms to amend or remove over 8,000 promotions – 14 times more than 2021. With the new rules in place, and with strict consequences, this number should theoretically drop.

To ensure the implementations are properly made, the FCA has published examples of good and poor practices on firms’ preparations for the new marketing rules.

Commenting on the new crypto marketing rules, Myron Jobson, senior personal finance analyst, interactive investor, said: “Cryptocurrencies marketeers have danced to the beat of their own drum for far too long, operating outside the regulatory framework that governs traditional investments. As a result, advertising in the crypto realm has become a wild west of dubious claims and misleading information.

“Cryptocurrency advertising often paints a vibrant picture, focusing on the allure of potential riches while conveniently sidestepping the intricacies and risks that underpin the crypto market. Unscrupulous actors have exploited the regulatory vacuum to peddle false promises and entice unsuspected victims into unwise and sometimes outright scam investments.

“Tougher rules on cryptocurrency regulation couldn’t come soon enough. The challenge for the regulator is to devise a robust customer knowledge framework so that all the players involved knows what good looks like. Armed with knowledge and a discerning eye, investors can better avoid the pitfalls of the crypto landscape.”

A strict deadline

Discussing why the rules have been introduced, Lucy Castledine, director of consumer investments, FCA said: “From this October, crypto firms must market to UK consumers clearly, fairly and honestly. And they must provide risk warnings people understand. As a proportionate regulator, we’re giving firms that apply a little more time to get the other reforms requiring technology and business change right. We’ll maintain our close eye on firms during this extended implementation period.”

If crypto assets continue to be marketed in a way that isn’t in accordance with the FCA’s new regulations, they may be committing a criminal offence. They could be punished with an unlimited fine and/or up to two years imprisonment.

Adding further comments on the severity of the punishments should the rules not be followed, Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “Although some extra time is being offered for technical changes, the FCA is taking a hard stance on the core new rules, stressing they will still be brought in by the October deadline.

“The threat of being punished by an unlimited fine and up to two years in prison, should be a wakeup call to firms tempted to play fast and loose with the law.

“It’s clear the FCA recognises the damage that can be done to overall investor confidence when such high-risk investments are bought by people who seem woefully unaware of the risks. However, it knows it’s also walking a tricky tightrope. It recognises these beefed-up safeguards are needed to ensure consumers are more protected from another crypto implosion, but at the same time it doesn’t want to quash innovation in the digital coin and blockchain space.’’

Avoiding overseas failures in the UK

A lack of crypto regulation has caused complications in countries with a strong crypto market. The US is a prime example.

Take Coinbase for example. The cryptocurrency exchange is a US-headquartered company, however, due to a recent struggle with the Securities and Exchange Commission (SEC) and US crypto regulations, it has hinted at a move away from the country.

Notably though, in January 2023, a lawsuit was filed against the crypto exchange for failing to live up to its alleged “bank-level security” in the US. This came as a result of a hack which lost the affected customers over $214,000 according to Bloomberg.

When speaking to The Fintech Times in January, attorney Matt Borden highlighted that the exchange would either have to remove its false advertising of “bank-level security” or improve the measures and systems in place so the advertised statements are true.

The FCA’s new regulations mean this type of alleged misleading advertising won’t stand in the UK. Should a company be promising that level of security, they must ensure they have the correct measures in place by 8 January 2024 at the latest.

These regulations are not a bad omen for the UK crypto industry

Despite regulators and the crypto industry often clashing heads, these new rules are not a bad indication for the UK crypto scene. In fact, in early September 2023, the Crypto Council for Innovation expanded its UK presence.

This furthers the organisation’s commitment to support and guide the United Kingdom as it takes steps to become a global leader in the digital assets and Web3 space.

For the past year, the CCI team has conducted meetings with UK regulators and policymakers. This has paved the way for engagement with official entities. For example HM Treasury, the FCA, Bank of England/PRA, and UK parliamentarians.

Setting the tone for the future, the UK office will expand upon CCI’s goals to work in trusted partnership with public and private sector stakeholders. It will also advocate for inclusive regulation, and elevate awareness of the advances possible with this innovative technology.