UK Treasury to crack down on ‘misleading’ crypto promotions
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Crypto companies will face stricter advertising rules under plans set out by the UK Treasury to boost consumer protections in the fast-growing digital asset industry, as global regulators tighten the screws on how tokens are promoted.
In a statement on Tuesday, UK chancellor Rishi Sunak said crypto assets could offer people new ways to transact and invest “but it’s important that consumers are not being sold products with misleading claims”.
The government said it would seek to change the law to give the Financial Conduct Authority oversight of most cryptocurrency promotions “in line with the same high standards that other financial promotions such as stocks, shares and insurance products are held to”.
The shift in UK policy comes after Spain this week imposed restrictions on the promotion of cryptocurrencies, while the Italian regulator warned of risks to consumers who had little knowledge of finance. Singapore’s watchdog has also joined other big financial regulators in cracking down and this week banned advertisements on public transport and through social media influencers.
Advertising for crypto tokens and exchanges has proliferated widely in the run up of crypto prices during the pandemic. Last year, the UK markets regulator estimated that 2.3m people in the country owned some crypto assets.
Crypto ads on London public transport have attracted particular attention.
The new rules, set out by the Treasury after a consultation process that began in 2020, will bring crypto ads under the scope of existing legislation for financial promotions, which states that “financial promotions must be fair, clear, and not misleading”.
Under these rules, financial ads need to come from a company authorised by the FCA or Prudential Regulation Authority, or else be approved in advance by an authorised group.
“I suspect that lots of crypto providers are going to struggle to advertise products in the future because I think FCA authorised firms will be unwilling or unable to approve financial promotions related to crypto,” said Jonathan Master, a partner at law firm Eversheds Sutherland. “What FCA authorised firm is going to stick its head above the parapet?”
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Dan Moczulski, UK managing director for eToro, which has branched out into crypto alongside stock trading, said the new rules would help level the playing field.
“It will mean that offshore providers have to abide by the same regulation as everybody else,” he said.
Until now, responsibility for crypto adverts has largely rested with the Advertising Standards Authority. Adding FCA oversight represents a big tightening of the rules, since the ASA’s powers are generally limited to investigating ads after the fact rather than requiring prior approval. The FCA can also impose fines on companies for serious breaches of its standards.
“We welcome the changes proposed by the Treasury today and are considering our approach to regulation of cryptoasset promotions,” the FCA said in a statement. “We continue to raise awareness around the risks of investing in cryptoassets and have warned consumers that if they invest, they should be prepared to lose all their money.”
Conservative MP Harriett Baldwin, a member of the Treasury select committee, welcomed the changes but said it was important that the new regime did not appear to be endorsing crypto. “I think the number one thing I want to see is that it’s made clear that these are not investments in the way that a stock or a bond is an investment,” she said.
Several London elected officials called for a ban on crypto ads on public transport after “memecoin” Floki Inu, which is named after Elon Musk’s dog, ran an advertising blitz last year across the UK capital’s Underground trains and buses. Floki Inu declined to publicly identify the people or companies that backed its token.
Last month, the ASA rebuked seven crypto groups for a wide range of promotions, including online campaigns and the use of social media influencers, saying “something has to change fast in the online space”.
The government also said that in some cases crypto lending and decentralised finance projects might be in scope of the new rules, while it set out plans to widen the reference to blockchain technology to give it more flexibility in future.
It will take at least several months for the new rules to come into force. The government said it would bring forward the new legislation “once parliamentary time allows” and provide a transition period of about six months once the rules were settled.