First-time investors in cryptoassets should be offered a 24-hour cooling-off period by those marketing them, according to the City regulator, which is introducing an advertising crackdown.
The Financial Conduct Authority (FCA)’s new advertising rules will mean firms marketing cryptoassets to UK consumers will need to introduce a cooling-off period for first-time investors from October 8 2023.
The regulator’s policy statement on financial promotion rules for cryptoassets said: “Even when the financial promotions regime comes into force, cryptoassets will remain high risk and largely unregulated.
“Consumers should only invest in cryptoassets if they understand the risks involved and are prepared to lose all their money. Consumers should not expect protection from the Financial Service Compensation Scheme (FSCS) or Financial Ombudsman Service if something goes wrong.”
As part of the package of measures designed to ensure those who buy crypto understand the risks, the FCA said “refer a friend” bonuses will also be banned.
The regulator said it wants consumers to receive timely, high-quality information that enables them to make effective investment decisions without being pressured, misled or inappropriately incentivised to invest in products that do not meet their needs.
Firms promoting cryptoassets must put in place clear risk warnings and ensure adverts are clear, fair and not misleading, the regulator said.
The FCA’s rules follow Government legislation to bring crypto promotions into the regulator’s remit.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “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.
“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.
“The crypto industry needs to prepare now for this significant change. We are working on additional guidance to help them meet our expectations.”
The FCA’s research indicates that 9% of adults owned cryptoassets in August 2022, which is around double the 4.4% it had estimated in 2021.
Its research indicated that while 79% of users bought cryptoassets using disposable income or cash, 6% had bought them using credit or borrowed money.
The FCA’s policy document added: “We will take robust action against firms breaching these requirements.
“This may include, but it is not limited to, requesting takedowns of websites that are in breach, placing restrictions on firms to prevent harmful promotions, and enforcement action.”
The regulator is also consulting on additional guidance, setting out expectations of firms advertising cryptoassets to UK consumers. Those wishing to have their say will have until August 10 to respond.
Myron Jobson, senior personal finance analyst at interactive investor, said: “Cryptocurrency markets are a cauldron of volatility, subject to wild swings and abrupt reversals.
“Investors require a comprehensive understanding of the volatility, technological complexities, and market uncertainties inherent in cryptocurrency bets.”
He added: “While it is only right that investors have the freedom to speculate, clear risk warnings are essential so that they know what they are getting themselves into.”
Laith Khalaf, head of investment analysis at AJ Bell, said: “The FCA is baring its teeth to crypto firms, with new rules which crack down on the marketing of crypto assets.
“The regulator is introducing a cooling-off period and is banning ‘refer a friend’ bonuses.
“Crypto firms will also have to place appropriate risk warnings in marketing, and ensure it’s clear, fair and not misleading – a mantra which everyone in the financial industry can recite in their sleep.
“The message to crypto firms is that if they want to play in the mass market, they’re going to have to play by the rules.”
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