FCA’s New Crypto Marketing Rules: Balancing Consumer Protection and Blockchain Innovation

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The UK’s top financial regulator, the Financial Conduct Authority (FCA), is in the process of finalizing rules concerning cryptocurrency marketing, as there is a growing mismatch between consumers’ investment decisions and their risk tolerance. According to a policy statement published recently, the FCA’s new regulations will require those promoting crypto assets to provide clear risk warnings, ensure advertisements are not misleading, and allow investors to back out of potential investments within a set timeframe.

The updated rules, which are expected to take effect on October 8, 2023, after a four-month transition period, are designed to achieve a balance between consumer protection and promoting potentially beneficial innovation. Firms engaged in crypto promotions must be authorized, registered with the FCA, or comply with applicable exemptions, with non-compliance leading to potential prison sentences, fines, or both.

One significant aspect of the new rules is the introduction of a 24-hour “cooling-off period” for first-time investors with a firm. This period requires firms to refrain from sending a Direct Offer Financial Promotion (DOFP) to a consumer until they reconfirm their request at least 24 hours later. Susannah Streeter, head of money and markets at Hargreaves Lansdown, notes that the cooling-off period can help reduce the fear of missing out effect, which often drives users to make hasty investment decisions.

On the other hand, the FCA does not want to stifle innovation in the digital coin and blockchain space, so the new regulations seek to strike a delicate balance. Streeter highlights the FCA’s desire to protect consumers from another FTX-style implosion while recognizing the need for safeguards that do not hinder innovation.

This development comes as the number of crypto holders in the UK more than doubled in a one-year span, with roughly 5 million adults holding crypto assets. A recent FCA survey revealed that 40% of respondents purchased crypto assets as a gamble, while about 30% expressed regret over their crypto investments.

In light of such data, the FCA’s updated rules aim to strengthen investor confidence and mitigate risks associated with high-risk investments and crypto promotions. However, as the landscape of digital coins and blockchain technology continues to evolve rapidly, finding the right balance between protecting consumers and promoting innovation will remain a delicate task for the UK’s financial regulator.

Source: Blockworks

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