The Financial Conduct Authority has said anyone marketing cryptoassets to UK consumers will need to introduce a ‘cooling off’ period for first time investors, as part of its new advertising rules introduced today.
The rules, which will come into force in early October, will mean first time investors will have to wait 24 hours in between their request to purchase crypto and the purchase itself.
In that time, the consumer cannot receive a direct offer of a financial promotion until they reconfirm their request to proceed after 24 hours.
Under the new rules, which follow government legislation to bring crypto promotions into the remit of the regulator, ‘refer a friend’ bonuses will also be banned.
It is clear the FCA recognises the damage that can be done to overall investor confidenceSusannah Streeter, Hargreaves LansdownThe FCA has asked the industry to provide its feedback on all the proposed rules, which contain other expectations of firms advertising crypto to UK customers, by August 10, with a view to publishing the confirmed rules in the autumn.
Sheldon Mills, executive director for 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,” he said.
“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.”
FCA research shows that crypto ownership has more than doubled from 2021 to 2022, with 10 per cent of 2,000 people surveyed saying they owned crypto.
Taming the wild west
The personal finance industry broadly welcomed the change, with many referring to the sector as a “wild west”.
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: "Relentless warnings about the dangers of pouring money into high-risk investments are clearly not working, and with crypto turning mainstream, the regulator is flexing its newly-found muscles to help police the space."
She said the cooling off period will help the “pile on” effect which happens when coins and tokens plummet in value in a matter of hours.
However, she added, the new rules are unlikely to satisfy the members of the Treasury committee who called for crypto to be regulated as gambling.
“It’s clear the FCA recognises the damage that can be done to overall investor confidence when such high-risk investments are bought by people who seem woefully unaware of the risks,” she said.
Laith Khalaf, head of investment analysis at AJ Bell, said the Treasury committee was probably “hasty” when it called for the change.
“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," he said.
Khalaf added that MPs were concerns bringing crypto into the regulatory environment would legitimise it with consumers.
But he added: "Around 5mn people in the UK have bought crypto, just shy of the 6mn who hold a stocks and shares ISA, so the horse has already bolted somewhat."
Khalaf argued that greater financial regulation of crypto might encourage more established financial services firms to enter the market, opening it up to new consumers – though he said there are still good reasons why they may continue to keep a safe distance.
“In any case, the fact that 10 per cent of UK adults own crypto demonstrates this is already a mass market. Better for it to be safe than sorry," he said.
Myron Jobson, senior personal finance analyst at Interactive Investor said the challenge for the regulator is to devise a robust customer knowledge framework so that all the players involved knows what good looks like.
“Armed with knowledge and a discerning eye, investors can better avoid the pitfalls of the crypto landscape.”
Rio Stedford, financial planning expert at Quilter, said cryptoassets are “not a good investment strategy”.
“Investing is not about making quick returns, but about getting rich slowly and crafting an investment strategy which takes into account how much you can realistically set aside each month to invest, your capacity for loss and appetite to risk given your investment objectives,” she said.
“Diversified, multi-asset portfolios will better guard you against violent swings in asset prices and ensure your long-term objectives are achievable, [which is] something cryptoassets are currently ill-equipped to provide.”
sally.hickey@ft.com
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