Advertising in the Spotlight as UK Crypto Regulation Takes Shape

After months of debate, the U.K.’s crypto regulatory framework is taking shape.

On Wednesday (Dec. 7), the U.K.’s House of Commons debated the Financial Services and Markets Bill (FSMB) which received cross-party support and will now go to the House of Lords for consideration.

Overall, the government got its way and successfully passed its amendments, including several related to regulating crypto assets.

And while a number of amendments tabled by the opposition received sympathy from Tory MPs, for example, Labour’s proposal to legally protect access to essential banking services, in the end, MPs toed the party line and successfully blocked the opposition’s major amendments.

Assuming the bill’s passage isn’t delayed by a lengthy process of parliamentary pingpong, the FSMB should become law in the spring of 2023, giving the Financial Conduct Authority (FCA) new responsibilities to oversee crypto asset service providers and setting the stage for stablecoins to be recognized as a form of payment.

The new rules will have broad implications for the crypto space, by bringing most crypto assets within the scope of rules for promoting financial investments, for example.

That means that any crypto platform that wants to advertise in the U.K. will need FCA approval, and crypto ads will be held to the same standards as other investment advertisements. This will give the advertising regulator a stronger mandate to prevent misleading promotions and will require all crypto ads to be labeled with an appropriate risk warning.

Finally, the FSMB also creates the conditions for the Treasury to establish new financial markets infrastructure sandboxes. These will enable the testing of blockchain technology in market infrastructures by temporarily disapplying or modifying certain legislation for specific purposes.

While the FSMB is certainly a landmark piece of legislation, it is far from the only action being taken in the U.K. to better regulate the crypto sector.

Away from the main FSMB deliberations, the Treasury Committee met to discuss a wide range of consumer risks in crypto investing in a 2½-hour meeting that covered topics including crypto lending and non-fungible tokens (NFT).

Crypto Marketing Comes Under Fire

In parallel with conversations happening in the main chamber, the idea that an underregulated crypto industry allowed a predatory business model that inflates the price of assets by marketing them to non-professional investors came to the fore.

For example, one expert witness, sports writer Joey D’Urso, raised the issue of soccer fan tokens, which he said enabled traders with little interest in the clubs at hand to profit from a volatile market at the expense of genuine fans.

Echoing the FSMBs intention to strengthen the advertising rules for crypto assets, he pointed to Crypto.com’s sponsorship of the Qatar World Cup as evidence that crypto firms were targeting sports fans and suggested that regulation and sports’ governing bodies have a role to play in clamping down on crypto advertising.

Also present at the meeting was Sarah Pritchard, executive director for markets at the FCA.

She too raised concerns that crypto advertising has led to consumers making risky investment decisions. She stressed that until now, the financial regulator has had a limited remit for regulating the sector, which has been limited to vetting firms for their ability to prevent money laundering and terrorist financing.

However, she said that the FCA has been preparing for a more comprehensive oversight role of the crypto sector.

“We haven’t confirmed the final set of rules for how [crypto advertising] will operate [but] you can very much expect us to take a similar approach to the new rules that we confirmed for high-risk investments back in August,” she said.

That new rulebook sets out the necessary warnings and visibility requirements firms need to provide to customers, for example, by mandating that digital platforms present risk warnings in a pop-up at the center of the screen.

It also requires that firms introduce “positive friction” into the investment process by including a 24-hour “cooling off” period for first-time investors with a firm. This means that consumers cannot receive specific financial promotions unless they reconfirm their request to proceed after waiting at least 24 hours.

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