FCA CP22/2: Strengthening financial promotion rules for high risk investments, including cryptoassets

Mar 25, 2022 12:00:00 AM

Cryptoasset compliance – what has happened?

In November 2021, the Advertising Standards Authority (ASA) announced that it was investigating various cryptoasset advertisements placed on websites including Yahoo Finance, YouTube, Daily Mail Online, Twitter and Facebook, and on a digital poster placed at London Bridge station.

The ASA’s remit covers regulated and non-regulated financial promotions in broadcast advertising under a Memorandum of Understanding with the FCA. As cryptocurrency services in general are unregulated, their advertising is covered by the ASA. See also however the explanation of the FCA’s CP 22/2 below.

Subsequently, in March 2022, the ASA issued a warning to more than 50 companies advertising cryptocurrencies, instructing the advertising companies to review their promotions and to ensure that they understand and are adhering with cryptoasset compliance. It stated that clamping down on troublesome crypto ads is a ‘red alert’ priority issue, and if the companies warned do not act by May 2, targeted enforcement action will be taken. This includes non-compliant advertisers being reported to the FCA

What do crypto firms need to know about cryptoasset compliance advertising?

In December 2021, seven ASA rulings were published concerning advertisements for cryptocurrencies which were held to be non-compliant as they were deemed to be taking advantage of consumers’ inexperience and failing to illustrate the risk of the investment. All of the advertisements ruled on were banned.

The investigations into these advertisements had been started by an ASA challenge rather than by any consumer complaint. The ASA had previously published on its website a statement about cryptoasset compliance that states;

“We’re aware that people are concerned about crypto-asset advertising – particularly regarding cryptocurrencies and ‘non-fungible tokens’ (NFTs). This is a ‘red alert’ priority issue for us and we’re taking action.

Crypto-assets have exploded in popularity in recent years, but there’s a real danger that people may be drawn in to invest life savings that they later lose based on poor understanding. We recognise the important role we play in regulating ads to ensure they don’t mislead consumers about a product’s risks or act irresponsibly in their promotion. To that end, we’re currently investigating a number of crypto-asset ads across different media, where we have concerns about:

lack of appropriate risk warnings
the trivialisation of investments in cryptocurrency
ads taking advantage of consumers’ inexperience or incredulity [sic]
irresponsible advertising (for example, creating a sense of urgency to invest).

We’ll be providing clarity around our expectations of crypto-asset advertising through these rulings, which we expect to publish in mid-December¹. We’ll then carry out proactive monitoring and enforcement to tackle non-compliant ads for crypto-assets”.

¹ this clarity seems to have taken the form of an enforcement notice that was issued together with the ASA’s warning.

In March 2022, the FCA’s Consultation Paper CP 22/2 on Strengthening our financial promotion rules for high risk investments, including cryptoassets completed its consultation period. The Treasury has confirmed it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets. The FCA is consulting on how it will categorise these cryptoassets once they are brought into the financial promotion regime. It intends to generally apply the same rules to cryptoassets as currently apply to Non‑Readily Realisable Securities and Peer‑to‑Peer agreements (collectively this category will be referred to as ‘Restricted Mass Market Investments’,). However, it is not proposing that it should be possible for ‘Direct Offer’ Financial Promotions of qualifying cryptoassets to be made to self‑certified sophisticated investors. Financial promotions relating to cryptoassets will need to comply with the financial promotion rules in COBS 4, including the requirements for the promotion to be clear, fair and not misleading.

How can we help you?

If you’d like to know more about how we can help you with your crypto advertising arrangements, cryptoasset compliance or with any other regulatory compliance issues, our specialist financial crime and crypto team is here to help.

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