On the 7th of August, The Financial Conduct Authority (FCA) issued a detailed report exposing widespread non-compliance among cryptocurrency firms with its marketing rules. The report and press release detail the findings of a comprehensive review into how well firms are abiding by the new crypto marketing regulations, which were introduced in October 2023.
The 2023 regulations were intended to protect consumers from the unpredictable nature of crypto investments. They imposed strict requirements on firms promoting crypto products and services. Most notable among the complicated regulations was the mandatory inclusion of risk warnings, cooling-off periods, and suitability assessments. However, the FCA’s recently published findings show that some firms have failed to comply with the requirements.
In the UK, the requirements of the FCA are gospel for financial businesses. That said, it is understandable for firms to have struggled to adjust to new regulations, as they were introduced suddenly. The recent FCA review paints a grim picture, but there is still time for businesses to course correct and comply. In 2018 UK gamblers found themselves in a similar position when Gamstop was introduced. Many found it to be unhelpful, distracting, and frustrating. In the years since, UK consumers have adapted by using offshore platforms, which avoid the UK’s Gamstop regulations, by operating outside of the jurisdiction of the FCA. This doesn’t mean such platforms are unregulated. Rather, they simply adhere to the rules of foreign licensing bodies. This means that casinos not on Gamstop still ensure player safety, just without compromising the gameplay experience.
The aim of the programme was to reduce risk, and that’s exactly what the recent FCA review also set out to do. Indeed, the most common issue highlighted in the FCA review is the failure of many firms to provide clear risk warnings to potential investors. By omitting or downplaying the risk associated with cryptocurrency, the FCA believes that firms are putting investors at risk.
Perhaps more concerning, however, is the widespread disregard by many firms for the mandatory 24-hour cooling-off period. The idea behind this rule is to give consumers time to reflect on their investment decisions. By ignoring this requirement, firms are robbing their clients of the chance to sleep on their choices.
Finally, the review has revealed subpar efforts to carry out suitability assessments for their clients. Under the new rules, firms should be assessing individual potential investor’s financial circumstances and risk tolerance before doing business, as crypto is deemed a high-risk investment. This is to ensure that vulnerable people do not financially self-harm. The FCA believes that firms who have failed to comply are displaying a disregard for consumer protection.
The regulator has made it clear in its recent press release that disregard for the rules will not be tolerated. Moving forward, firms found to be in breach of 2023’s updated regulations will face hefty fines and the potential revocation of operating licences.
Moving forward the FCA urges firms to prioritise consumer protection and to work together to help raise industry standards. While the crypto industry is experiencing promising growth and exciting innovation, firms should be mindful that progress must not come at the expense of ethics.
While the report highlights the failings of some firms, it is very much worth pointing out that most have demonstrated good practices and compliance. Many firms have even gone beyond the minimum requirements, showing a real commitment to customer protection.
The FCA has commended these firms for their proactive approach and has encouraged others to follow their example. By highlighting examples of good practice, the regulator aims to achieve industry-wide improvement.