FCA emphasises consumer education in crypto marketing rule proposals

The FCA has proposed new rules to regulate the marketing of cryptocurrency, focusing on better education of consumers and better risk warnings.

Under the rules, which apply to high-risk investments, the FCA would ensure firms that market products fully understand the investments being offered.

The companies would be required to improve risk warnings on adverts and ban incentives to invest such as new joiner or refer-a-friend bonuses. Consumers making certain high-risk investments would be asked questions about their knowledge and investment experience.

Cryptoassets would be categorised as “restricted mass market investments”, meaning that consumers could only respond to financial promotions if they are classed as restricted, high net worth or sophisticated investors. Firms selling these assets would fall under FCA rules for the first time, requiring them to be clear, fair and not misleading.

The consultation, which closes on 23 March 2022, is designed in the FCA’s words to “give consumers the confidence to invest and reduce the number of people who are investing in high-risk products that are not aligned to their needs.”

The news comes as cryptocurrency adverts on the London Underground have reached record levels, according to a freedom of information request by the Guardian.

Last year, an advertising campaign by cryptocurrency exchange Luno was slapped down by the Advertising Standards Authority for being irresponsible and misleading. It featured the tagline “If you’re seeing bitcoin on the underground, it’s time to buy”.

Sarah Pritchard, Executive Director of Markets at the FCA, said: ‘”Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investment strategy.”

For marketers of traditional investment products, the changes could open up a potential selling point. The number of people investing has grown during the pandemic as many accrued greater savings due to the lockdown, while the interest rates for savings account remain low. To many of these new investors, cryptoassets have offered the lure of easy and quick returns.

With cryptocurrency advertising more strictly regulated and the risks more clearly advertised, investment managers can focus on emphasising the benefits of diversification and the skills of fund managers.

Commenting on the proposals, Nathan Long, Senior Analyst at Hargreaves Lansdown, said that the consultation “addresses many of the key issues and impressively harnesses behavioural insights to improve risk disclosure.”

“There’s nothing necessarily wrong with high risk investments, but those choosing them should ensure they understand the risks involved.  Having sufficient time to invest, enough cash set aside for a rainy day and ensuring the high risk investments are a sensibly sized part of their long-term portfolio are all important considerations.”

While he claimed the proposals would be likely to “improve decision making and shift investing behaviour”, he mentioned there were still anomalies, such as it being “easier to have a speculative punt on a cryptocurrency than it is to add small allocations to long term infrastructure investment in a pension.”