UK To Address Marketing Of High Risk Crypto Investments

The UK’s financial watchdog, the Financial Conduct Authority (FCA), is planning on clamping down on the marketing proliferation of crypto and other high-risk investments.

Anyone who watches YouTube or other online streaming services will have encountered adverts that tout “taking a punt” on crypto assets or other investment schemes.

But this has triggered regulatory concern, and the FCA has now said it will strengthen risk warnings on these adverts and ban incentives to invest, such as new joiner or refer-a-friend bonuses.

Marketing clampdown

This is according to the FCA announcement on the matter on Wednesday, saying it is “acting to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed.”

Under the proposed rules, the FCA would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered.

It also will seek to improve risk warnings on ads and ban incentives to invest, for example new joiner or refer-a-friend bonuses.

“Those looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks,” the FCA announced.

The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the Government bringing the promotion of these high-risk investments under the FCA’s remit.

When it does, the FCA said it plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors.

Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading.

Celebrity endorsements

Matters have not been helped by the fact that sometimes these adverts have been endorsed by celebrities or sport stars.

Reality TV star Kim Kardashian and boxer Floyd Mayweather Jr. for example are currently facing a lawsuit in the US, alleging the celebrities misled investors in their promotion of a cryptocurrency token.

Meanwhile the Spanish market regulator has censored football player Andres Iniesta in November after he promoted cryptocurrency exchange platform Binance on his Twitter and Instagram accounts.

Spain also moved this week to regulate crypto advertising, including by social media influencers, Reuters reported.

Hollywood actor Matt Damon has also fronted a campaign to promote digital asset platform Crypto.com.

Last November the estate of the author of the fantasy epic ‘The Lord of the Rings’ moved to block a cheeky move by a cryptocurrency developer, which tagged itself with the tagline “The One Token That Rules Them All”.

The estate of JRR Tolkien fiercely protects his name and took trademark action against the developer of a cryptocurrency called JRR Token.

The JRR Token cryptocurrency was launched in August, and included a video endorsement from Billy Boyd, the actor who played Pippin in the Lord of the Rings films.

Risky investments

“Too many people are being led to invest in products they don’t understand and which are too risky for them,” said Sarah Pritchard, Executive Director of Markets at the FCA.

“People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investments strategy.”

Last month the Bank of England issued a fresh warning about the risks associated with cryptocurrencies.

Speaking with the BBC, deputy Bank governor Sir Jon Cunliffe said that fast-growing cryptocurrency assets could pose a danger to the established financial system.

Sir Jon said at the time that not many UK households currently hold assets such as Bitcoin, however he admitted this is becoming more mainstream nowadays.

Currently only 0.1 percent of UK households’ wealth is in cryptocurrencies.

But he warned that if their value fell sharply, it could have a knock-on effect, and the Bank needed to be ready to contain those risks.

The FCA meanwhile is inviting feedback on its proposals by 23 March 2022, and intends to confirm its final rules in summer 2022.