Despite the current volatility of the cryptoasset markets, they remain remarkably popular, especially among amateur investors. 

 

With this growing interest in digital currencies, NFTs (Non-Fungible Tokens) and other investments backed by blockchain technology, there has been a surge in advertising, which has now caught the attention of the UK Government. 

 

It has confirmed new plans to regulate misleading cryptoasset adverts by bringing their promotion within the realm of existing financial promotions legislation.

 

The response is based on research conducted by the Financial Conduct Authority (FCA), which highlighted the dangers of misinformed advertisements produced by companies promoting crypto-investment services to consumers. 

 

The study found that 2.3 million people – around 4.4 per cent of the population in the UK – hold some type of cryptoasset.

 

However, a separate study, undertaken between January 5 and 24 2021, showed that only 71 per cent of those who had heard of cryptoassets correctly identified their definition – this was four per cent lower than the FCA’s previous survey. 

 

Additionally, only ten per cent of respondents were aware of consumer warnings on the FCA website about cryptoassets and 44 per cent said the warnings had no impact on their investments.

 

Considering these results, the Government intends to amend the Financial Services and Markets Act 2000, which will say a business cannot promote a financial product unless it is authorised by the FCA or the PRA.

 

As a result of this change, cryptoasset advertisements will have to abide by the same FCA rules applied to stocks, shares, and insurance products.

 

Chancellor of the Exchequer, Rishi Sunak, said: “Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims.

 

“We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”

 

Broadly speaking, for investors, the new changes should have minimal real impact. Whether advertised or not, cryptoassets primarily gather a following on online forums and platforms, such as telegram and discord. 

 

Word of mouth and community-driven hype has historically been the main method of advertising cryptoassets, particularly in the case of newer low market cap cryptocurrencies, which by their nature are riskier investments. 

 

While advertising has a role to play, it perhaps isn’t as significant as the FCA and Government suggest, especially among more experienced crypto investors. 

 

Perhaps one of the most obvious and far-reaching changes within the legislation, and the one that will bring the biggest impact, is the much broader definition of ‘cryptoasset’ that is being adopted within the rules.

 

This brings in previously unregulated utility tokens and exchange tokens, such as Bitcoin and Ethereum, within the definition of cryptoassets in the financial promotions regulations.

 

In light of these changes, firms will need to review their existing promotional material to ensure they do not fall foul of the new regime.

 

The announcement should also remind such firms and platforms that they need to understand the footprint of their retained cryptoasset business practices, especially in relation to advertising activities. 

 

Adverts need to be clear and fair, and firms should be careful to ensure that the promotion of cryptoassets follow the same FCA rules and guidance as other more traditional financial promotions.

 

This could mark a big change in the promotion of cryptoassets and related services, which have often taken a more innovative approach to their marketing, which may be at odds with this new approach. 

 

Although it is easy to appreciate the sentiment behind the change in approach, I don’t think that a crackdown on advertising cryptoassets is going to yield a massive change of behaviour in the average investor. 

 

Perhaps a more proactive approach in educating the general public on the nature of cryptoassets, the inherent risks and common scams, would provide the average investor with the knowledge required to make their own informed decision on whether the cryptoasset arena is in line with their overall investment strategy and risk appetite.

 

At present, this doesn’t seem to be in place and so instead the Government is relying on legislation to curtail the activities of businesses operating with the crypto market, which may not have the impact that they hope to achieve given the nuances of the sector and investors. 

 

To find out more about Mackrell.Solicitors’ services for the blockchain and cryptoasset sectors, please contact us.

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