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FCA issues new guidance on how to comply with digital asset promotion rules

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The Financial Conduct Authority (FCA), the United Kingdom’s financial regulator, has published new guidance around digital asset promotions, fleshing out newly introduced rules that clamp down on individuals and companies offering digital asset services in the country.

The guidance provides additional clarity on the FCA’s expectations for firms promoting digital asset offerings in the United Kingdom. It does not, in theory, create new obligations for digital asset firms but merely expounds on the new responsibilities that came into force at the start of October, which, among other things, require FCA authorization for any digital asset advertisement in the country.

“While the new rules for firms marketing crypto to U.K. consumers are aligned with the existing rules for other high-risk investments, we’ve engaged extensively with industry and designed this Guidance to specifically support crypto firms complying,” said Lucy Castledine, Director of Consumer Investments at the FCA in a statement.

After the government passed legislation to put digital asset promotions within the remit of the FCA, the regulator issued a series of rules aimed at ensuring that people purchasing digital assets are aware of the risks involved. In addition to the FCA authorization requirement, digital asset advertisements and promotions must also meet certain requirements, including the need to be fair, clear, and not misleading.

It then engaged in consultation on the new rules, which led to today’s new guidance. For instance, the guidance elaborates on what is entailed by ‘fair, clear, and not misleading’:

“Given the lack of transparency about the purpose/functionality of some cryptoassets and cryptoasset-related models, we expect firms to undertake significant due diligence on the cryptoassets to be promoted. We expect firms to take particular care with the information they give and the way in which it is communicated to ensure financial promotions are fair, clear, and not misleading. We expect firms communicating or approving cryptoasset financial promotions to carefully consider consumers’ information needs. In developing and reviewing financial promotions, firms should be particularly aware of the need to ensure that those receiving promotions are well equipped to take clear, considered, and informed decisions as to whether investing in cryptoassets is right for them.”

It says that when firms are assessing whether a given promotion is fair, clear, and not misleading, they should consider a number of factors:

  • Clarity and comprehension of the promotion
  • Consumers’ understanding of risks
  • Providing a balanced view of information
  • Exaggerated claims
  • Omitting relevant information
  • Past and future performance
  • Disclosing costs, fees, and charges
  • Effective systems and controls to monitor compliance with the promotional rules

The guidance also specifically cautions firms against describing a given product or service as ‘guaranteed,’ ‘protected,’ or ‘secure.’

The more detailed guidance will no doubt be part-inspired by the number of firms that remain non-compliant with the new promotion rules. The FCA issued a letter to digital asset firms operating in the U.K. who had not yet registered with the regulator, warning them of the incoming rules and expressing concern over a lack of engagement from the industry.

The concern was well founded: the FCA issued 146 warnings to non-compliant digital asset promoters within the first 24 hours of the rules coming into force. As of this week, that number had risen to 221. The FCA identified three of the more common issues it was seeing in assessing digital asset promotions:

  • Promotions that made claims about the safety, security, or ease of using digital asset services without drawing investor attention to the incumbent risks;
  • Risk warnings that are not visible enough owing to too-small fonts, hard-to-read coloring, or non-prominent positioning
  • Firms failing to provide investors with adequate information on the risks associated with specific products

The firms that did not comply have been added to the FCA’s ‘warning list.’ The FCA has further powers to ban offending advertisements, and a breach of the promotional rules (such as by advertising a digital asset product without FCA authorization) is a criminal offense punishable by up to two years imprisonment, an unlimited fine, or both.

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