Recently, the Financial Conduct Authority (FCA) in the UK has implemented a series of measures aimed at enhancing consumer protection in the cryptocurrency market. These measures acknowledge the risks associated with cryptoassets and are designed to ensure that individuals fully comprehend these risks before investing. In this article, we will outline the key aspects of the FCA’s new regulations and their implications for investors. They are due to be implemented on 8 October 2023.
What Are The New Regulations?
The FCA has classified cryptoassets as restricted mass market investments (RMMI). This categorisation reflects the FCA’s assessment of the risks posed by cryptoassets. These risks include volatility, firm failure, fund comingling, cyber-attacks, and financial crime. By designating cryptoassets as RMMIs, the FCA aims to emphasize the importance of understanding the risks and aligning investments with an individual’s risk tolerance and needs.
24 Hour Cooling off
A significant protection introduced by the FCA is the implementation of a 24-hour cooling-off period for investors. During this time, investors can withdraw from transactions without penalty. Firms, however, can proceed with essential checks such as know your customer/anti-money laundering (KYC/AML), client categorisation, and appropriateness assessment. This cooling-off period gives investors the opportunity to carefully evaluate their decision, ensuring they make an informed choice.
10% Net Asset requirements
Ordinary retail investors must limit their exposure to crypto investments to no more than 10% of their net assets. This requirement aims to prevent individuals from overexposing themselves to the high risks associated with cryptoassets. Investors must also ensure that their investment is appropriate for their financial circumstances.
Refer a friend bonuses
To address poor-quality and misleading promotions, the FCA has prohibited the use of ‘refer a friend’ bonuses in crypto promotions. Additionally, those promoting cryptoassets must provide clear risk warnings, ensuring that advertisements are fair, transparent, and devoid of misleading information. The FCA is taking robust action against firms that breach these requirements. This may include website takedowns, warning listings, restrictions on harmful promotions, and enforcement actions.
Firms that illegally communicate financial promotions to UK consumers will be committing a criminal offense. This is punishable by an unlimited fine and/or two years in jail. To allow firms time to comply with the new regulations, a four-month transition period has been provided before the rules come into full effect.
Sheldon Mills, the executive director of consumers and competition at the FCA, emphasizes the importance of informed decision-making, acknowledging that crypto remains largely unregulated and high risk. The FCA is also working on additional guidance to assist the crypto industry in meeting their expectations.
The new rules have received positive feedback, with experts highlighting the FCA’s proactive approach to consumer protection. As a result of these regulations, the FCA is expected to increase its investigations and enforcement actions against cryptoasset firms for breaches of the new financial promotion rules.
With the rapid growth of crypto investments, the FCA measures to safeguard crypto investors are there to enhance consumer protection in the crypto market and are a significant development. Investors should exercise caution and consider the risks associated with cryptoassets before making any investment decisions.
This article is not investment advice and only generic information. If you require further information or assistance regarding how to report your cryptoassets correctly to HMRC, please contact us and our team of Crypto Accountants will be happy to help.