The Financial Conduct Authority (FCA) has announced a host of restrictions on those marketing cryptoassets to UK consumers, including the introduction of a ‘cooling-off period’ for first-time investors.
The new rules, which will come into force on 8 October, mean crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto.
In addition, those promoting the asset must also provide clear risk warnings, and ensure adverts are “clear, fair and not misleading”.
‘Refer a friend’ bonuses will also be banned under the new rules.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “It is up to people to decide whether they buy crypto, but research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice.
“Consumers should still be aware that crypto remains largely unregulated and high risk. 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.”
The FCA has estimated that crypto ownership has more than doubled from 2021 to 2022, and with 10% of the 2,000 people surveyed saying they own crypto, much of the industry is in agreement with the principle behind this regulation.
Rio Stedford, financial planning expert at Quilter, said the announcement brought some welcome reassurance that those who do not understand the risks of investing in crypto, but are lured in regardless, will be better protected.
Stedford argued while some have made money through investing in cryptocurrency, they are taking a “real gamble”, especially the more inexperienced investors, who are more vulnerable to the promotions regularly seen on social media and elsewhere.
Meanwhile, Myron Jobson, senior personal finance analyst at Interactive Investor, added it was high time cryptocurrency marketeers were brought to heel, having previously operated outside the regulator’s framework.
He argued: “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.
“Without a firm grip on the reins, advertising in the crypto realm has become a wild west of dubious claims and misleading information. Unscrupulous actors have exploited the regulatory vacuum to peddle false promises and entice unsuspected victims into unwise and sometimes outright scam investments.”
Hargreaves Lansdown’s head of money and markets Susannah Streeter said new customers starting to speculate in crypto would benefit from the 24-hour cooling-off period: “Such is the volatile nature of the crypto markets that coins and tokens can plummet in value in a matter of hours – but it means novice users of exchanges could back out within the set timeframe, if they get cold feet and realise they don’t have money they can afford to lose.”
Concerns over FCA classification of crypto assets
While most agree with the principles of the new rules, trade association Pimfa has warned of a ‘halo effect’ resulting from cryptoasset’s classification as Restricted Mass Marketed Investments.
David Ostojitsch, director of government relations and policy at Pimfa, explained: “Classifying crypto-assets in such a way runs the risk of creating a ‘halo effect’ that may benefit some associated digital assets, leading consumers to assume they are safe assets to invest in or covered by some form of redress if consumers lose money. Neither is true.”
Ostojitsch said there is clearly a future role for crypto-assets, but only if they are marketed appropriately and to the right people.
“There is a significant danger here that consumers will assume crypto-assets are safe because they are being marketed by an FCA-regulated person or firm. Again, we would stress this is not the case,” he concluded.
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