New FCA crypto legislation comes into force

On October 8th, 2023, the Financial Conduct Authority (FCA) introduced new legislation to regulate the advertising of crypto assets in the United Kingdom. With the exponential growth of the crypto industry in recent years, concerns about investor protection and market stability have become increasingly prominent. The FCA's new regulations seek to address these concerns by imposing strict rules on how crypto assets can be advertised and promoted. This article will explore the critical aspects of this legislation and its potential implications for the crypto industry and investors.


The crypto advertising landscape

Cryptocurrencies and digital assets have garnered significant attention from investors, traders, and the general public. This heightened interest has led to many advertisements and promotional campaigns, often promising quick riches and financial success. While some advertisements are legitimate, others have been associated with scams, fraudulent schemes, and misleading information. As the crypto market can be volatile and investing in it can take some risk, the FCA has been closely monitoring the sector’s progress in recent years and is keen to ensure that advertisements do not exaggerate potential rewards.

Six key provisions of the new legislation

Clear risk warnings: Under the new regulations, all advertisements for crypto assets must prominently display clear and concise risk warnings. These warnings will emphasise the volatile nature of crypto markets, the potential for loss, and the need for investors to do their research.

Target audience: Advertisers will be required to identify their target audience. This means that promotions aimed at experienced investors will be subject to different rules than those aimed at retail investors, who are typically more vulnerable to risky investments.

Prohibition of misleading information: The FCA's legislation explicitly prohibits advertisements that contain misleading information or make false claims about the performance of crypto assets. Advertisers will need to ensure that their content is factually accurate.

Endorsements and testimonials: The regulations also address using endorsements and testimonials in crypto advertising. Any endorsements or testimonials must be genuine, and advertisers must disclose any compensation provided to endorsers.

Promotion of regulated activities: If an advertisement promotes a crypto asset that falls under the FCA's regulatory purview, such as crypto derivatives or security tokens, it must comply with existing regulatory requirements for those products.

Monitoring and reporting: Advertisers and crypto platforms will be required to monitor their advertisements and report any suspicious or potentially fraudulent activity to the FCA.

Implications for the industry

The introduction of these new regulations is expected to have several implications for the crypto industry:

Increased accountability: Advertisers and crypto platforms will now be held accountable for the content they promote. This is likely to deter fraudulent schemes and enhance the overall integrity of the industry.

Improved investor protection: With more explicit risk warnings and transparent advertising, investors are less likely to be misled or deceived, providing better protection for retail investors.

Market maturation: These regulations may contribute to the maturation of the crypto market, making it more attractive to institutional investors who have been hesitant due to concerns about market integrity.

Global influence: The FCA's actions may serve as a model for other regulatory bodies worldwide, influencing how crypto assets are advertised and promoted globally.

The FCA's new legislation on crypto asset advertising represents a significant step towards protecting investors and ensuring the integrity of the crypto industry. By imposing stricter rules on advertising content, the FCA aims to reduce the risks associated with investing in cryptocurrencies and promote a more transparent and responsible marketplace. While some in the crypto community may view these regulations as restrictive, they could ultimately contribute to the long-term sustainability and legitimacy of the digital asset market. Investors and industry participants must adapt to these new rules, which will likely shape the future of crypto advertising in the UK and potentially beyond.

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