- The UK’s Financial Conduct Authority (FCA) has provided more guidance on its cryptoasset regulations following insufficient changes by many crypto companies.
- Crypto firms are required to be transparent, fair, and not misleading.
- However, many do not warn investors of potential risks when promoting their crypto services.
To reduce crypto investment risks, the UK’s FCA recently provided more guidance on its regulatory framework surrounding how crypto companies advertise their services.
Revised rules are necessary because, since introducing them in October 2023, the FCA has issued 1K warnings, removed 48 apps from UK app stores, and dished out some hefty fines.
Let’s explore the FCA’s long compliance path and why crypto companies should adhere.
Many Crypto Services Don’t Warn Investors of Potential Risks
The FCA’s main requirement for crypto-based promotions is that they must be transparent, fair, and not misleading.
Despite officially introducing cryptoasset promotion regulations in October 2023, the FCA gave advance warning of the changes in June 2023 to give crypto platforms time to adjust.
After seeing that not all companies would be able to comply by the deadline, the FCA gave certain firms extra leeway to comply by January 2024.
However, not long after the rules came into effect, the UK’s financial regulator identified these shortcomings in many firms:
- Cooling-off periods: Not explaining the purpose of a cooling-off period to investors
- Risk warnings: Not warning investors of the potential risks
- Client categorization: Guiding consumers toward specific categories rather than enabling them to make their own investment decisions
- Assessment design: Not appropriately assessing investors’ crypto knowledge or experience before making investments
- Record keeping: Not clearly representing how they record data or take the appropriate steps to verify the data’s accuracy
- Due diligence: Not explaining when and how a crypto asset would fail alongside the risks associated with promoting crypto
FCA Fined a Member of the Coinbase Group $3.5M
The FCA issued 53 new warnings to unauthorized and cloned crypto services this week alone.
We’ve issued 53 new #FCAWarnings to unauthorised and clone firms in the past week. Protect yourself and find all recent warnings https://t.co/0qLeqfKYJ0 pic.twitter.com/d84dXeRCbp
— Financial Conduct Authority (@TheFCA) August 2, 2024
As well as being issued warnings, they may face severe penalties. For example, the FCA fined CB Payments Limited (part of the Coinbase Group) $3.5M for continuing to serve high-risk customers despite being banned from the VREQ.
To ensure other crypto companies don’t face similar issues, the FCA advises them to take these steps:
- Familiarize themselves with the latest guidelines
- Invest in new technological developments
- Gather all necessary information and documents, such as how they meet the FCA’s anti-money laundering criteria
- Make use of the FCA’s ‘good and poor practice’ examples to better understand the expectations and avoid the common pitfalls
- Respond to the FCA’s feedback, which may include changing certain practices and giving investors more information
Conclusion – More Crypto Firms Need to Comply with FCA Regulations
The FCA is enhancing oversight in the crypto industry to mitigate investment risks made through poor promotional practices.
The FCA’s continuous updating of its guidelines and now issuing warnings and fines shows there is a pressing need for crypto companies to abide by the regulations.
References
- Assessing firms’ compliance with ‘back end’ cryptoasset financial promotions rules (FCA)
- FCA takes first enforcement action against firm enabling cryptoasset trading (FCA)
- FCA Warning List of unauthorised firms (FCA)
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
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