The UK’s financial regulator has followed the US Securities and Exchange Commission in upping its oversight of crypto, with new rules to be instated for marketing.
Those marketing cryptoassets to UK consumers will need to introduce a cooling-off period for first time investors from 8 October 2023, under new advertising rules, the regulator said on Thursday.
As part of a package of measures designed to ensure those who buy crypto understand the risk, “refer a friend” bonuses will also be banned.
The new rules come into effect as research from the FCA shows that estimated crypto ownership has more than doubled from 2021 to 2022, with 10% of the 2,000 people surveyed stating that they own crypto.
They mean that crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto. Those promoting crypto must also put in place clear risk warnings and ensure adverts are clear, fair and not misleading, the regulator said.
“How crypto firms will be able to prove that their customer base has the appropriate level of knowledge is anyone’s guess,” said Myron Jobson, senior personal finance analyst at Interactive Investor. “The challenge for the regulator is to devise a robust customer knowledge framework so that all the players involved knows what good looks like. Armed with knowledge and a discerning eye, investors can better avoid the pitfalls of the crypto landscape.
Read more: Bitcoin takes a bath as SEC sues exchange giant Binance
The FCA’s rules follow government legislation to bring crypto promotions into the regulator’s remit.
“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice,” said Sheldon Mills, the FCA’s executive director of consumers and competition.
In May, the Treasury Committee called for consumer trading in unbacked crypto to be regulated as gambling.
What has the SEC done so far?
While the FCA’s action will mean quite different operating guidelines for how crypto firms market in the UK, they are no way near as serious for crypto firms as the SEC’s crackdown in the US.
So far this week, the US regulator has moved to sue both Binance and Coinbase (COIN) – two of the largest exchanges operating in the country. Coinbase is listed and technically regulated, while Binance operates out of the US through an entity called Binance.US.
On Monday, a lawsuit alleged Binance had carried out illegal operations in the US and mishandled customer funds. The crux of the 136-page suit alleges that Binance orchestrated “an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
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Tuesday saw the SEC sue Coinbase, and allege that tokens such as SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO are securities.
The two suits indicate a more broad brush approach to regulating the industry as a whole.
Crypto has been acutely in regulators’ crosshairs since the spectacular crash of crypto exchange FTX.
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