Laith Khalaf, head of investment analysis at AJ Bell, comments on the FCA’s introduction of new rules for marketing crypto assets:
“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.
“This is likely to be the thin end of the wedge for crypto regulation, as financial watchdogs across the globe seek to protect consumers from fraud, sharp sales tactics and misleading information. Only this week, Binance has been charged with a number of offences by the SEC, and the crypto world is still reeling in the wake of the FTX scandal. The crypto market has often been compared to the wild west, but now the sheriffs are riding into town to clean things up.
“The FCA’s new rules showcase why the Treasury Committee was probably hasty in proposing that crypto is regulated as gambling rather than as a financial service. The FCA is extremely strict when it comes to rules on promotions and is well-connected internationally, which is vital when confronting such a global industry as crypto. The ban on refer a friend bonuses introduced by the FCA stands in sharp contrast to the regular promotions of free bets offered by gambling companies to lure in new customers.
“The Treasury Committee was understandably concerned that bringing crypto under the banner of financial services regulation would legitimise it to consumers. But around 5 million people in the UK have bought crypto, just shy of the 6 million who hold a stocks and shares ISA, so the horse has already bolted somewhat. The identity of the regulator is unlikely to be a major swing factor for most consumers buying crypto, while the prevalence of risk warnings is likely to have a much more material effect.
“Greater financial regulation of crypto might encourage more established financial services firms to enter the market, opening it up to new consumers – though there are still good reasons why they may continue to keep a safe distance. In any case, the fact that 10% of UK adults own crypto demonstrates this is already a mass market. Better for it to be safe than sorry.”
