The United Kingdom’s Financial Conduct Authority (FCA) recently announced new regulations aimed at tightening advertising rules within the crypto industry. These rules, set to take effect on October 8, will prohibit the practice of giving away free NFTs (non-fungible tokens) and cryptocurrencies through airdrops as a means to promote digital asset investments.
According to Matthew Long, the FCA’s director of payments and digital assets, the distribution of NFTs and airdrops as promotional products often leads consumers to purchase crypto without fully understanding the potential risks involved. This new measure aims to address this issue, but it is important to note that NFTs and airdrops themselves will not be banned. The focus is on restricting promotions that involve them.
FCA’s Classification of Crypto as “Restricted Mass Market Investment”
Under the newly published rules, the FCA classifies cryptocurrencies as “restricted mass market investments.” This classification requires firms promoting crypto products or services to provide clear risk warnings to potential investors. Additionally, bonuses like “refer a friend” programs that incentivize the public to invest in cryptocurrencies will be banned. To discourage impulsive purchases, the regulations also introduce a mandatory “cooling-off” period for first-time investors.
Research conducted by the FCA indicates a significant increase in crypto ownership, with the number of owners more than doubling from 2021 to 2022. Out of the 2,000 individuals surveyed, 10% reported owning cryptocurrencies.
Sheldon Mills, the executive director of Consumers and Competition at the FCA, emphasized that while it is ultimately the individual’s decision to invest in crypto, research shows that many individuals regret making hasty investment choices. The new rules aim to provide people with sufficient time and appropriate risk warnings to make informed decisions.
It is crucial for consumers to understand that the crypto market remains largely unregulated and carries high risks. Those who choose to invest should be prepared for the possibility of losing their entire investment.
Despite Pushback, FCA Remains Firm on Tighter Rules
The FCA sought public feedback on its proposed marketing rules in 2022 and received considerable disagreement from respondents regarding measures such as banning incentives, restricting non-real-time promotional offers (DOFP), and treating crypto as a mass market investment.
Currently, only entities authorized by the FCA can approve their own crypto advertisements. To address the lack of a comprehensive framework for authorizing crypto firms, the government has introduced a temporary exemption. This exemption allows crypto firms registered with the FCA to comply with the authority’s anti–money laundering (AML) requirements and approve their own advertisements, starting from October.
It is important to note that this exemption is temporary and, in the future, only FCA-authorized entities will have the authority to approve crypto ads. Some industry players express concerns that this requirement may be overly restrictive.