FCA proposes tougher rules for cryptoasset marketing

The rules will apply to ‘qualifying cryptoassets’ – defined as any cryptographically secured digital representation of value or contractual rights that is transferable and fungible – but will not include cryptoassets which meet the definition of electronic money or an existing controlled investment.

In a new policy statement (93 pages / 1.20MB PDF), the FCA said cryptoasset firms must ensure that people have the appropriate knowledge and experience to invest in their products. As part of a package of measures designed to ensure those who buy crypto understand the risk, those marketing cryptoassets to UK consumers will need to introduce a 24-hour cooling-off period for first time investors from 8 October 2023.

Incentives like ‘refer a friend’ and ‘new joiner’ bonuses will be banned under the new rules, which will require cryptoasset firms to include clear risk warnings in their advertisements and promotions.

Financial services specialist Jonathan Cavill of Pinsent Masons said: “This approach is part of the FCA’s continued plan to promote good customer outcomes and ensuring that firms do the right thing. The FCA is keen that customers are able to make an informed choice with respect to financial services and products – and this initiative expands that approach to cryptoassets.”

The change comes after the government announced plans to bring cryptoassets within scope of the FCA’s financial promotion regime earlier this year. The regime, which requires that financial promotions are fair, clear and not misleading, will apply to all firms marketing cryptoassets to UK consumers – regardless of whether the firm is based overseas, or the type of technology used to make the promotion.

Financial regulation expert Hannah Ross of Pinsent Masons said: “While the FCA’s approach to the promotion of crypto is a significant change for the crypto industry, it is consistent with rules introduced last year to tackle misleading financial advertisements of high-risk investments. It continues the regulator’s focus on three core commitments laid out in the 2023/24 business plan to reduce and prevent serious harm, set and test higher standards and promote competition and positive change.”

The FCA has also launched a consultation on new guidance (31 pages / 433KB PDF) to ensure that firms clearly understand the implications of the financial promotion regime’s requirement for cryptoasset marketing. The regulator said it would publish its final rules on cryptoasset promotions once the government has introduced the legislation that will bring cryptoassets within its regulatory perimeter.

Forensic accounting specialist Hinesh Shah of Pinsent Masons said: “The UK FCA's proposed ban on crypto incentives and the classification of crypto as ‘restricted mass market investments" will have a significant impact on cryptoasset firms. These companies will need to conduct adequate due diligence and ensure their promotions are fair, clear, and not misleading. Firms that fail to comply may face severe penalties, including imprisonment.”