In a consultation response published today (January 18), the government said while it was eager to support innovation in cryptoassets and recognised the potential benefits of certain products, Financial Conduct Authority research had highlighted the potential for consumer harm through misleading adverts.
The government has therefore confirmed amendments it will make to the Financial Services and Markets Act 2000, which will say a business cannot promote a financial product unless it is authorised by the FCA or the PRA.
This means the promotion of the majority of cryptoassets will be subject to the same FCA rules applied to stocks, shares and insurance products.
Chancellor of the Exchequer Rishi Sunak said: “Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims.
“We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”
The government highlighted research conducted by the FCA that showed 2.3m people, approximately 4.4 per cent of the population in the UK, currently hold cryptoassets.
However, it said in a survey undertaken between January 5 and 24 last year, only 71 per cent of those who had heard of cryptoassets correctly identified their definition, a drop of 4 per cent on the FCA’s previous research.
“[This suggests] that some cryptoasset users may not fully understand what they are buying,” the report said.
Furthermore, only one in ten users were aware of consumer warnings on the FCA website and 44 per cent of those surveyed said the warnings had no effect in their plans to purchase or keep cryptoassets.
Some cryptoasset users may not fully understand what they are buying.UK GovernmentThe changes to the financial promotions legislation include a definition of qualifying cryptoassets, which is: “a cryptographically secured digital representation of value or contractual rights which is fungible and transferable”. This currently excludes non-fungible tokens.
The government said its decision to bring these types of advertisements into the scope of regulation will mitigate the risks of consumer harm, ensuring people have the appropriate information to make informed investment decisions.
However, Laura Suter, head of personal finance at AJ Bell, said the FCA’s own research had shown that a crackdown on advertising will have a limited impact as most people find out about cryptocurrency elsewhere.
“The regulator’s data showed that only 2 per cent of the people it questioned were led to buy crypto from an advert when they previously hadn’t planned to, and just 5 per cent who were thinking about buying made the leap because of an advert,” she said.
“While the move will help some people, it won’t stop the outright scams that have exploded off the back of Bitcoin and other cryptos soaring in price.
“What would have a far bigger impact is cracking down on social media accounts where people claim to have made their millions from buying Bitcoin, most of which are ultimately scams or glorified pyramid schemes.”
The FCA said in October that social media firms should be forced to stop financial adverts by implementing “systems and controls”.
This was after the government continued to refuse to include paid for adverts in the upcoming Online Safety bill.
Three social media giants have meanwhile agreed to change the way they manage adverts in order to clamp down on online scams.
The latest legislation changes will be brought forward when parliamentary time allows and the government intends to put in place a transitional period of around six months between the finalisation and publication of the proposed law and the associated FCA rules.
sally.hickey@ft.com
