The UK Government is proposing to bring the promotion of crypto-assets into the scope of the FCA’s existing oversight, rather than creating a new framework specifically for these products.
Citing concern over investor protection, the economic secretary to the Treasury & City Minister, John Glen, said that even companies that sell regulated investments with an underlying cryptocurrency element might need FCA authorization to do so depending on their activities.
“If adverts by unauthorised firms are misleading, or don’t fully outline the risks, then people can end up losing money. That’s why we want to put more protections in place around such financial promotions, including the promotion of cryptoassets, while continuing to ensure people have access to a wide range of products on the market,” said Glen.
Providing the FCA with power to regulate the promotion of certain types of cryptoassets, for the first time, would be the quickest way of doing this and stamping out misleading advertising.
HM Treasury said that a dearth of regulation around cryptocurrencies and revenant financial products had left investors exposed to many risks without any of the protections usually afforded to retail investors, such as access to compensation.
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Britons want to get rich quick
The City Minister further explains that the current regulation requires unauthorized firms to get their promotions approved by a regulated firm before they can promote a particular financial product. This, however, failed to keep up with the expanding number of cryptocurrency products coming to market. Instead, he proposes that even regulated firms need to pass through the FCA’s gateway and obtain a specific consent before being approved to promote cryptocurrency products.
The FCA has recently published the findings of independent complementary research, which showed that UK consumers buying virtual coins are often looking for ways to ‘get rich quick.’ Many of those interviewed perceived crypto assets as a shortcut to easy money and wealth.
According to the FCA, crypto fraudsters were increasingly using social media to promote their schemes, often using fake celebrity endorsements and images of expensive cars and watches to persuade victims.
The City watchdog is already weighing a potential ban on the sale of derivatives based on cryptocurrencies, in what would be its first major intervention in the nascent market. The aforementioned consultation could lead to prohibiting the sale of derivatives, including CFDs, options, and futures, based on cryptocurrency prices to retail investors.
The FCA doesn’t consider cryptocurrencies themselves regulated assets, but derivatives on the back of them fall under its powers of oversight.