‘Crypto promotions to be treated on par with high-risk investments’

Speaking at City Week 2023 yesterday (April 25), Sarah Pritchard, executive director of markets, and executive director of international, said crypto - that one-time symbol of alternative rebellion - has become more widespread. 

She explained that like many things, it has now picked up in popularity.

And yet so few consumers know what it is, how it works and what they are getting into.

“As this once alternative investment becomes more popular, we need an open debate about risk, mitigation and the limits of regulation,” she said.

Pritchard said at the time of FTX’s collapse, she was in the US meeting regulatory peers in Washington and New York and said “it was instructive to see them work effectively” and at pace to try to stop the fallout spreading.

“While we have been relentless about warning that consumers need to be prepared to lose all their money if buying cryptoassets - and actually issued a warning a week before FTX collapsed about its unauthorised operation in the UK - we have always been open to innovation,” she said.

She argued that cryptoassets and blockchain offers opportunities for more efficient and innovative financial services and products. 

Sanctions will range from taking down websites, to issuing public warnings, to enforcement action.

For example, they can make international cross-border payments faster and cheaper, which could support international trade or help the global workforce more easily send money to friends and family overseas. 

“These are worth exploring,” she said.

“At the FCA, our current remit over crypto is limited to making sure that crypto firms that operate here comply with anti-money laundering and counter-terrorism legislation.”

“Only when the government legislates will we have more powers to regulate crypto.”

The UK’s Money Laundering Regulations require UK-based cryptoasset exchanges and custodians to apply for registration with the FCA – but this does not bite on overseas firms who may target UK based consumers, Pritchard explained.

Of the applications the FCA has determined, nearly three quarters - 195 - were either refused or withdrew their application.

Yet she said the FCA has supported firms to meet the right standards, and registered 41 crypto firms of all sizes.

Financial promotions

However, moving from the alternative spectrum into becoming widespread will attract change and one of the areas where the FCA sees the most tangible change will be in the regulation of financial promotions.

“This will come into our remit once the government legislates and firms will have four months to implement the changes,” she said.

“The rules will be published after the legislation is put forward.

“Firms should start preparing for this now: we expect crypto promotions to be treated on a par with other high-risk investments and failure to comply will be a criminal offence. 

“Like other high risk investments, consumers will be given a cooling off period to decide whether they want to invest their money.”

These regulations will apply to all firms marketing cryptoassets to UK consumers, regardless of whether the firm – or perhaps even celebrity influencer - is based overseas or what technology is used to make the promotion.

The FCA is working with international counterparts to spread the word and help enforce compliance as it recognises many adverts may stem from abroad.

“We will take robust action where we see firms promoting cryptoassets to UK consumers in breach of these rules,” she said.

“Sanctions will range from taking down websites, to issuing public warnings, to enforcement action.”

She added: “We know that advertising is powerful. And never has it been so important to test the validity of those claims as during a cost of living crisis, when consumers may be increasingly desperate to make money quickly and take excessive risk, sometimes falling prey to scams.”

Elsewhere, she said the number of reports to the FCA of cryptoasset scams have progressively increased over the years. 

In 2019 there were 1,619 reports compared to 6,372 in 2021.

“We at the FCA have a substantial role to play in preventing harm to consumers from financial crime,” she said.

“None of the cryptoasset firms registered with us have been approved to offer crypto ATM services. Last year we warned operators of crypto ATMs in the UK to shut their machines down or face enforcement action.”

When they failed to do so, the FCA conducted joint raids with the West Yorkshire Police and soon after the Met Police. 

Pritchard said through the FCA’s ScamSmart and InvestSmart campaigns, it warned consumers of the risks and had an online portal where they can report scams and check the warnings list.

The FCA had some success with getting Google and Bing to stop promotions of firms on their platforms that are not authorised by the regulator. 

“We hope others tech giants follow. We will continue this focus and hope other tech giants will follow.”

sonia.rach@ft.com

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