UK FCA Rolls Out Stricter Rules for Crypto Ads

The United Kingdom’s Financial Conduct Authority (FCA) has announced that it will be rolling stricter regulations on crypto ads, including the cooling-off period for first-time investors and a ban on refer friend bonuses. The FCA announced that the new restrictions for crypto advertisers in the UK would take effect from October 8 2023.

In June 2023, the FCA mandated crypto companies in the UK to implement a cooling-off period for first-time investors. The UK watchdog has enhanced measures as part of investor awareness of risks by prohibiting the use of refer friend bonuses by firms in the sector. According to the new regulations, crypto firms must verify that individuals possess the necessary experience and knowledge to engage in crypto investment. Companies promoting crypto in the UK must provide clear risk warnings and ensure their advertisements are transparent, fair and devoid of misleading information.

Views On the UK’s Crypto Regulations

Executive Director of Consumers and Competition at the FCA, Sheldon Mills, said:

“While the decision to purchase crypto lies with individuals, research indicates that many express regret over impulsive choices. The rules aim to give people sufficient time and appropriate risk warnings to enable an informed decision-making process”. Mills added that the crypto industry must already start to prepare for this significant change. 

Director of Operations at CryptoUK, Su Carpenter, said that the new rules could prevent new users from entering the market. Carpenter added that “there is a risk that this solution will unfairly concentrate market power for those already authorised firms and potentially encourage unauthorised firms to operate outside the UK. That could, in turn, create a competitive disadvantage for UK-based organisations and also potentially undermine consumer safeguards”.  

Reasons Why the FCA Initiated the Regulations

The clampdown from the FCA follows moves toward tighter regulation in the United States Securities and Exchange Committee (SEC), filing lawsuits against Coinbase and Binance, according to experts at Bitai Method. On June 5th 2023, the SEC filed a lawsuit against Binance, stating that the exchange failed to register as a securities exchange and operated illegally in the US. Thirteen charges were pressed against Binance, including unregistered offers, sales of Binance USD and BNB tokens, the Simple Earn and BNB Vault products and its staking program.

Binance CEO Changpeng “CZ” Zhao was sued, alleging that he is a controlling CEO. The lawsuit against the exchange and its CEO noted that the defendants sought to make a profit of billions of US dollars while placing investors’ assets at significant risk. 

In a statement, SEC’s Chair, Gary Gensler, said, “As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custody”. 

A day after filing the Binance suit, the SEC went after Coinbase on similar grounds as Binance. According to the lawsuit, Coinbase has never registered as a broker, national securities exchange or clearing agency and evaded disclosure of schemes for securities markets. The SEC alleges that several tokens offered by Coinbase qualify as securities. 

The lawsuit noted: 

“Coinbase has operated as an unregistered security broker since 2019, almost two years before its initial public offering in April 2021”. 

At the same time, SEC’s Chair, Gary Gensler, said that the “crypto exchange allegedly deprived its customers of critical protections that prevent fraud and manipulation and avoided proper disclosure and safeguards against conflicts of interest”. Director of the SEC’s Division of Enforcement, Gurbir Grewal, said, “As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities but deliberately refused to allow them”. 

In August 2022, the FCA finalised stricter regulations to address misleading advertisements concerning high-risk investment products. However, those restrictions did not include cryptocurrencies, as the regulator was awaiting confirmation from the government to extend its oversight to crypto products. On August 1, 2022, the FCA announced that it would be tightening the guidelines for promoting high-risk products to individual investors, not crypto. 

The FCA noted that significant risk warnings from the company are marketing high-risk investments and certain investment rewards including referral bonuses will be banned completely. 

Despite this, crypto promotions are exempted from the new guidelines. Still, the FCA intends to devise final rules on crypto promotions after the government outlines that such assets are in the regulator’s remit. The FCA added, “Crypto remains high risk, so people need to be prepared to lose all their money if they choose to invest in crypto assets”.

In the recent announcement, the FCA stated that the steps taken to tackle crypto ads align with the restrictions implemented a year ago for advertising high-risk investments. The FCA has opened for public comment on additional guidelines outlining obligations for crypto ads. Those interested have until August 10th 2023 to do so.

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