As the 8 October 2023 deadline approaches for activating the new financial promotions regime for digital assets, the UK's Financial Conduct Authority (FCA) issued its last advisory warning today (Thursday), urging crypto companies targeting UK consumers to brace for the forthcoming regulatory adjustments.
UK Government Tightens Regulations on Cryptoasset Promotions
The UK Government has recently enacted legislation to regulate the promotion of cryptoassets to consumers. The move aims to protect Britons from making high-risk investments without adequate information. The new financial promotion regime will apply to all firms marketing crypto assets in the UK, including those based overseas.
In light of the approaching date for implementing new regulations and the fact that cryptocurrency companies are facing 'significant challenges' in preparing for their rollout, the FCA issued a final warning. The authors of the warning are Lucy Castledine, the Director of Consumer Investment, and Matthew Long, the Director of Payments and Digital Assets, both at the Supervision, Policy and Competition Department at the FCA.
According to the warning, firms that believe they will be in breach of the new regulations must urgently reconsider their position. The FCA strongly recommends that firms seek legal advice to avoid committing a criminal offense and exposing themselves to potential enforcement action. The new regime is not intended to harm consumers by restricting their access to existing assets but aims to prevent further high-risk investment activity.
"We expect those supporting unregistered crypto asset firms illegally promoting to take their responsibilities seriously and to play their part in protecting UK consumers," the FCA commented.
The FCA recently disclosed statistics concerning financial promotions for the second quarter of the year, spanning from April to June 2023. The information revealed that actions taken by the FCA resulted in 1,507 promotions being either modified or retracted by entities under its regulation. Moreover, the FCA sent out 400 warnings to firms and individuals operating without authorization, with 11% of these being clone alerts.
However, companies had plenty of time to prepare for the upcoming changes. The FCA first announced them in January 2022, and then in February 2023, the UK government released a document clarifying the necessary details. At the same time, the regulator was assessing how well-prepared companies were for the changes taking effect in October, offering potential assistance.
What Does the New Regime Cover?
The financial promotion regime is designed to be broad, covering communications made through websites or apps. It is expected that most, if not all, cryptoasset firms providing services to UK consumers will fall under this new regulation . The regime aims to ensure that consumers make investment decisions based on fair and accurate information, fostering a more consumer-centric landscape for firms to compete and innovate.
The primary objective of the new regime is to protect consumers from making ill-informed decisions about high-risk investments like crypto assets. The UK Government believes that consumers should have access to accurate information to make effective investment choices. The rules applied to cryptoasset promotions are consistent with those for other high-risk investments.
Firms that fail to comply with the new regime could face severe consequences, including criminal charges. Penalties may include up to two years in prison, unlimited fines, or both. The UK's FCA will take robust action against firms found to be in breach of the new regulations, including placing them on a 'Warning List' and taking steps to remove or block any illegal financial promotions.
Intermediaries such as social media platforms, search engines, and payment firms also have a role to play in this new regulatory landscape.
"Additionally, once in force, the Online Safety Bill (OSB) will place duties on search engines and social media companies to put in place systems and processes to mitigate the risks to users posed by the presence and dissemination of illegal content on their sites, including illegal financial promotions," the document explained.
In the meantime, Finance Magnates revealed that the FCA had established specific guidelines for crypto firms in the UK concerning adherence to the 'Travel Rule'. Effective 1 September 2023, crypto companies in the nation must comply with the new set of rules, which necessitates the gathering, validating, and disseminating of crucial data associated with crypto asset transfers.
