- The FCA released its Policy Statement PS23/6 regarding the promotion rules for cryptoassets.
- This is to prevent firms from making false claims and protect UK customers.
The crypto industry is in its infancy, and as seen with any emerging technology, it offers both risks and rewards to the users and investors. Any innovation can’t be managed without risk, and this risk should not be eliminated but properly managed. The collapse of well-established firms holding billions of dollars, like FTX, has raised doubts over this thriving yet uncertain industry.
Crypto technologies can have a profound impact on the traditional financial service sector, boosting it with innovation. However, this also calls for effective regulations to provide users and businesses the confidence to invest in it by being properly educated about the risks involved.
The Watchdogs
The Financial Conduct Authority (FCA) is a watchdog and financial regulator in the UK. Although the crypto asset firms are not themselves regulated, FCA ensures that they abide by anti-money laundering (AML) strategies and prevent any potential funding for terrorist activities. The only regulated crypto asset under FCA is security tokens.
It maintains the integrity of financial markets, and any firm registered within FCA is expected to follow the required AML policies and conduct proper checks (like KYC) before onboarding their users. The retail and wholesale firms both come under the FCA.
Lately, the UK Advertising Standards Agency (ASA) has openly shown its involvement with the crypto assets by inspecting closely the social media posts and tweets, preventing any false claims or ads. The HM Treasury and The Bank of England play some roles in regulations around cryptocurrencies.
The Recent Regulations
The Crypto Assets Taskforce (CATF) in its report of 2018 identified the many risks consumers are exposed to by using cryptocurrencies. These risks are mainly because of investing without proper awareness, and the advertisements prompting people to buy them were often misleading, unclear, and unfair.
The FCA released its Financial Promotion rules for crypto assets in June 2023 for firms to engage in fair and informed advertisements. This Policy Statement (PS) categorized crypto assets as Restricted Mass Market Investments (RMMI) and lists out the restrictions while advertising the same to UK customers. With this PS, the near final policy position and rules are made and will be effective from October 8th, 2023.
Cryptoassets are included in the category of RMMI and are subject to similar regulations as faced by other objects in this category. They can be mass-marketed, however, with some restrictions. They were categorized so because of the risks involved due to sudden loss because of cyber attacks, volatility, firm failures, etc. Stablecoins, Commodity tokens (backed by assets), and Fan tokens will observe fewer restrictions.
The PS also established a standard risk warning that must be included in all the promotions concerning RMMI and NMMI class objects. The latest risk warning is presented below and is open for review and changes.
The FCA has banned all incentives related to crypto asset promotions. This does not imply incentives that are intrinsic to the assets, such as voting rights in decentralized governance. However, incentives that are part of the business model and are meant to motivate consumers, like extra tokens, will be scrutinized. The major policy is made considering first-time investors, where it is mandatory to provide them with a minimum 24-hour cooling period. A Direct Offer Financial Promotion (DOFP) is to be offered only if they reconfirm their request after 24 hours. Firms have to implement this policy along with other mandatory checks, such as those of AML and KYC. This ensures that consumers have sufficient time to consider and reconsider their position, and risk appetite, and then make an informed decision to invest.
Conclusion
The PS includes several other proposals, such as a personalized risk warning pop-up and client categorization, among others. It also includes the list of duties that a consumer should follow. The complete PS guidelines are to protect UK customers from being exposed to misleading promotions by UK and foreign firms.
