The Financial Conduct Authority has complained that crypto companies are failing to comply with new rules regulating their advertising, with many attempting to skirt the rules.
“We have seen firms relying on industry comparisons to benchmark what is acceptable. Given the levels of poor practice in the market, firms should not be doing this,” complained the FCA.
The watchdog introduced the new rules in October policing how crypto firms advertise, to ensure that customers don’t make bad or overly risky investment decisions.
Since the new rules took effect, the FCA has issued over 1,000 warnings to crypto firms.
One rule the FCA introduced last year was a 24 hour ‘cooling-off period’, where new customers that join for a direct offer financial promotion must have to wait a day to receive it.
“The cooling-off period allows consumers time to reflect on the investment and decide whether to proceed to purchase the assets,” said the watchdog.
However, the FCA said that while all crypto companies had complied with the rule, many had not included an option to withdraw from the offer after 24 hours, or implemented a withdrawal fee at the end of the period.
“Additionally, some firms did not inform consumers about the cooling-off period until they were a significant way through the investment journey, which could lead to consumers becoming frustrated,” it added.
Meanwhile, ordinary retail customers are restricted from investing more than 10 per cent of their assets in high-risk investments, including crypto, under the new rules.
Crypto companies must enforce this by categorising their clients by if they are an certified ‘sophisticated investor’ from an FCA authorised firm over the last three years.
However, plenty of companies did not take “reasonable steps” to make sure customers who said they were FCA certified fit the bill, with the FCA complaining that crypto companies should at least check that the customer had given the name of an actual authorised company.
“Some of the submissions from consumers were clearly jokes or not relevant, and firms had not checked these certificates,” griped the watchdog.
“The FCA’s guidance shows how burdensome it is for firms to comply with the FCA’s rules for cryptoasset financial promotions,” argued Mike Ringer, a financial services Partner with law firm CMS.
“Many industry participants will be questioning the justification for such onerous requirements for cryptoasset firms when compared with other areas of financial services, as well as with rules in other jurisdictions.
“They will also question whether the FCA is striking the right balance between consumer protection and user experience, with the latter undoubtedly suffering significant detriment when compared to users in other leading cryptoasset markets.”