The Financial Conduct Authority (FCA) says that Digital asset promoting firms have breached the U.K.’s new marketing and advertising rules for the industry at least 221 times since the regime came into force in October.
The U.K. FCA announced that firms are still failing to comply with the country’s new digital asset promotion rules, which came into force on October 8. The FCA issued 146 alerts on breaches of the new rules in the 24 hours after the new regime went live, that number has now risen to 221.
The financial sector watchdog identified three common issues continuing to arise with digital asset financial promotions, namely:
- promotions making claims about the safety, security, or ease of using digital asset services without highlighting the related risks;
- risk warnings not being visible enough due to small fonts, hard-to-read coloring, or non-prominent positioning;
- and firms failing to provide customers with adequate information on the risks associated with promoting specific products.
“We expect authorized firms approving the financial promotions of cryptoasset firms to take their regulatory obligations seriously,” said the FCA. “Where this is not happening, we will take action.”
The FCA advised consumers to check its warning list, which will be continually updated, before making any investment in digital assets.
“The list will help consumers understand where firms’ promotions may be breaking the law and to consider the promotion with the full information available,” said the FCA.
In its statement, the regulator also took the opportunity to reiterate the inherent risks involved in digital asset investment, saying, “even with the new marketing rules, cryptoassets still remain high-risk and largely unregulated. If something goes wrong, it is unlikely people will have access to consumer protections, so should be prepared to lose all their money.”
The new promotion rules
The FCA introduced the financial promotion regime on June 8. Under the new rules, any promotion of digital currency products or services needs to attach a “clear warning,” notifying investors of the high-risk nature of the assets and potential losses; firms marketing digital assets to U.K. consumers need to introduce a 24-hour cooling-off period for first-time investors to allow them to consider, and possibly back out of, potentially unwise investments; and promotions can only be communicated via certain legal routes, set out by the FCA.
The four lawful routes firms can take to communicate digital asset promotions in the U.K. are if:
- the promotion can be communicated by an “authorized person,” as defined by the FCA. This includes ICVC, the Society of Lloyd’s, and persons with Part 4A permission;
- an unauthorized person can communicate a promotion that has been approved by an authorized person;
- the promotion can be communicated by a digital asset business registered with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs);
- or the promotion meets the conditions of an exemption in the Financial Promotion Order.
Promotions not using one of these legal routes are in breach of the new regime and thus potentially committing “a criminal offense punishable by up to 2 years imprisonment, an unlimited fine, or both.”
Even before the rules came into effect, the FCA saw problems on the horizon. On September 21, the agency felt the need to write to unregistered digital asset firms, warning them over their lack of engagement with the incoming regime.
The letter, titled ‘final warning’ and sent out to digital asset firms marketing to U.K. customers, bemoaned the lack of engagement the FCA had seen despite the deadline edging ever nearer.
“We are concerned by the poor engagement from many unregistered, overseas cryptoasset firms who have U.K. customers on this important change. Many of these firms have refused to engage with the FCA despite our best efforts. For example, only 24 firms responded to a survey that was sent to over 150 firms,” said the FCA.
“The lack of engagement gives us serious concerns about unregistered firms’ readiness to comply with the new regime.”
The FCA also reiterated that digital asset firms operating in the U.K. had been given fair warning about the incoming rules, which “included statements on our website, multiple
letters to firms, and numerous industry engagements.”
As it turned out, these fears came to pass, as only 24 hours after the rules came into effect on October 8, the FCA already had to issue 146 alerts related to breaches of the rules.
The regulator’s latest October 25 update on continued breaches came with a reminder to firms still not engaging with the promotion rules that the FCA intends to look kindly on those who cooperate and act decisively with those who don’t.
“Where firms are engaging with the FCA in good faith with a view toward achieving compliance, we are taking a proportionate approach to implementation,” said the
statement. “However, in the case of non-compliance, we will take robust action to remove illegal content to protect consumers.”
This action may include working with social media platforms, app stores, search engines, domain name registrars, and payment providers to remove, block, and stop the flow of funds to banned promotions.
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