Crypto Promotions in the UK Will Be Harder To Get Approved

Advertising cryptocurrencies and other crypto assets in the U.K. has been largely unregulated — like the crypto industry itself — and according to regulators, the lack of specific rules in this space could harm retail investors as they may not be aware of the risks associated with these investments. But this may soon change, as the Financial Conduct Authority (FCA) is proposing to apply the same financial promotion rules to crypto assets as to other high‑risk investments, categorized as “Restricted Mass Market Investments.”

The FCA issued a consultation paper in January 2022, titled “Strengthening our financial promotion rules for high risk investments, including cryptoassets.” The consultation, which covers other high-risk investments that are not crypto assets, aims at providing consumers with more and better information before they make an investment. The consultation closed on March 23, and the FCA intends to publish its final rules in summer 2022. The new changes will apply to promotions of qualifying crypto assets from the date they are brought within the financial promotion regime.

Crypto promotions in the U.K., for the time being, are only supervised by the Advertising Standards Authority (ASA), which doesn’t have the same powers as the FCA, and companies are subject to a much more lenient set of rules. However, the ASA has been actively banning crypto ads for the last year. In January, it banned two adverts from Crypto.com because they were misleading; before that, it also banned ads from eToro and Coinbase for similar reasons. Just this week, ASA published an enforcement notice for cryptocurrencies stating that this is “red alert” priority issue for the regulator and urging companies to follow its guidelines. The increasing number of crypto ads encouraged regulators to change the supervision of promotions from a light-touch approach with the ASA to a more stringent regime under the FCA.

Read More: Ban Of ‘Misleading’ Ads By UK Regulator Revives Debate Over Crypto Regulation

The new rules proposed by the FCA will apply to “qualifying crypto assets,” which is “any cryptographically secured digital representation of value or contractual rights which is fungible and transferable.”

The financial promotion restriction will apply to any promotion capable of having an effect in the U.K. — this means that even companies located overseas that intend to advertise in the U.K. will be subject to these new rules. FCA rules for financial promotions require that promotions need to be clear, fair and not misleading and must be approved by an authorized firm. The new rules seek to align FCA’s rules for crypto assets with existing rules for other high‑risk investments, that place additional restrictions on firms communicating or approving relevant promotions. If a company doesn’t comply with the rules, it could see its promotion withdrawn and face penalties.

In practice, this means the mass‑marketing of crypto assets to retail consumers will be permitted, subject to meeting the requirements of the financial promotion rules. This includes risk warnings and a ban on inducements to invest. These limitations may have a detrimental impact on crypto companies as they may be banned from using techniques like “refer a friend” bonuses, and they will also have to offer a cooling-off period.

The new rules may bring an unexpected problem. The FCA has recognized that firms may find difficulties getting their promotions approved. “As crypto assets currently sit outside the financial promotion regime, there is unlikely to be an existing population of approver firms. We recognize that the population of authorized firms with sufficient competence and expertise to approve crypto asset financial promotions is likely to be limited at first.”

Despite the new set of rules that companies will have to follow to promote crypto assets, the FCA also offered an important clarification for other activities. “The financial promotion regime will only apply to crypto asset promotions — it will not affect the regulatory status of the underlying activity. This means that, to the extent that an activity relating to crypto assets is unregulated today, it will remain unregulated once the new financial promotion rules apply.”