New rules about cryptoasset adverts on the way
The government is consulting on a proposal to bring certain cryptoassets into the scope of financial promotions regulations.
The proposals were published by city minister John Glen and would bring the advertising of certain types of cryptoassets under Financial Conduct Authority (FCA) regulation for the first time.
Glen said: “It’s important that people can understand the financial products they see promoted. If adverts by unauthorised firms are misleading, or don’t fully outline the risks, then people can end up losing money. That’s why we want to put more protections in place around such financial promotions, including the promotion of cryptoassets, while continuing to ensure people have access to a wide range of products on the market.”
HMRC also published a consultation about financial promotions issued by unauthorised firms.
Both consultations aim to tackle the issue that misleading advertising or a lack of suitable information can expose potential investors to a level of risk they are not prepared for.
Glen said: “Currently, if an unauthorised firm wants to promote a particular financial product, they need to get that promotion approved by any authorised firm. But with the variety and vast quantity of products being offered on the market today, the government believes that this no longer provides a strong enough safeguard.
“Today’s proposals would mean that authorised firms will now have to obtain specific FCA consent to approve the financial promotions of unauthorised firms. This would mean the FCA can have better oversight of those firms which would help ensure such promotions are clear, fair, and not misleading.”
The promotion of cryptoassets is currently unregulated, but their proliferation, and the fact they are often targeted towards retail investors, underscores the importance of adverts being upfront about the risks involved.
If cryptoasset promotions are bought under FCA regulation it would mean that their promotion would be held to the same high standards for fairness, clarity and accuracy that apply to traditional financial services promotions.
Both consultations will run from today (20 July) until 25 October.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “After a surge in cryptocurrency buying in the past year, the government has decided to take action and proposed that the FCA be given powers to regulate adverts and promotions in the cryptocurrency market. The FCA has previously said that its hands were tied in some of its work on cryptocurrencies as it didn’t have the power to regulate much of the market – but this move will change that.
“Advertising is incredibly powerful in the cryptocurrency market. More than a third of people who bought cryptocurrencies did so because an advert had encouraged them. But those people are also less likely to understand the risks involved and more likely to regret buying cryptocurrencies.
“Social media has played a big part in the boom in cryptocurrency buying, as it’s so easy for posts to be seen by thousands of people in a matter of minutes. But the claims made in the posts are often fantasy and there is very little oversight of what people are claiming. A crackdown on cryptocurrency advertising, particularly on social media, would prevent more vulnerable people from buying and protect them from losses.”