UK FCA warns digital asset firms over poor engagement with new rules

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The U.K.’s Financial Conduct Authority (FCA) warned unregistered digital firms over their lack of engagement with the incoming financial promotions regime, which introduces new rules around digital asset marketing in the United Kingdom.

In a letter titled ‘final warning’ and sent out to digital asset firms marketing to U.K. customers, the country’s top financial sector regulator bemoaned the lack of engagement with its new rules.

“We are concerned by the poor engagement from many unregistered, overseas cryptoasset firms who have UK 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. have been given fair warning about the incoming rules, which “has included statements on our website, multiple letters to firms and numerous industry engagements.”

As well as, once again, urging unregistered firms to engage with the FCA and get their promotions in line with the new rules, the regulator outlined some of the procedures it will follow if firms don’t comply.

“If firms fail to comply with the requirements of the regime it is likely we will issue an alert against them on our website and we will seek to remove or block those financial promotions,” warned the regulator. “We strongly recommend firms seek legal advice to avoid committing a criminal offence and exposing themselves to potential enforcement action.”

It concluded the letter by stating, “We expect those supporting unregistered cryptoasset firms illegally promoting to take their responsibilities seriously and to play their part in protecting UK consumers.”

The U.K. financial promotions regime will come into force on October 8, so all digital asset firms, local or overseas, marketing to U.K. customers don’t have long to adapt and comply.

UK regulatory changes

The FCA introduced the financial promotion regime in June.

“The new rules mean crypto firms must ensure that people have the appropriate knowledge and experience to invest in crypto,” said the FCA in its June 6 press release.

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. An example suggested by the FCA was: “Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.”

Firms marketing digital assets to U.K. consumers will also 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.

Another change is a ban on so-called ‘refer a friend’ bonuses.

The new rules come out of collaborations with the U.K. Treasury on its February 2023 consultation on the Future Regulatory Regime for Cryptoassets.

The consultation laid out plans to wrap digital asset activity into existing financial regulation and included establishing an issuance and disclosure regime tailored to digital assets; strengthening the rules that apply to financial intermediaries and custodians of digital assets; and adopting a bespoke, digital asset-specific market abuse regime.

On June 29, the Financial Services and Markets Act (FSMA) received Royal assent from King Charles, giving U.K. regulators, namely the FCA and the Prudential Regulation Authority, the powers that they need to implement the rules on which the U.K. Treasury began consulting in February, making it the first step towards a digital asset framework.

The passing of the bill also extended the banking rules of the FSMA to stablecoins and digital assets, meaning that for the first time in the U.K., digital assets are officially recognized as a regulated financial activity.

Watch: Why blockchain regulatory oversight is important