The Financial Conduct Authority (FCA) has warned social media firms that it would hold them responsible for the publication of illegal financial promotions of crypto-assets, two days after the Online Safey Bill passed its final reading in the House of Lords.
Addressing delegates at the recent PIMFA conference in London, Lucy Castledine, director of consumer investments at the FCA, said the UK regulator had become increasingly concerned by the spread of unregulated advice on social media and other digital channels.
And she warned crypto-assets were a risk in the consumer investment space, with consumers being “scammed into investing into crypto-assets that were not genuine” or receiving “promotions that do not properly set out the high risks involved” in investing in crypto-assets “even when they are genuine”.
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She warned more consumers than ever were at risk of “taking advice from unregulated sources, such as social media, investing in assets with a higher risk than their tolerance and making them more vulnerable to scams”.
“We want to see a market where consumers can only access products and services that meet their needs and that means making sure there is a wide variety of support available,” she said.
Crypto of paramount concern
Castledine said the promotion of crypto-assets were of paramount concern to the regulator and presented a significant risk to consumers. “Given the decentralised nature of the technology,” she said, crypto-assets were particularly attractive “to bad actors seeking to launder their funds”.
However, hedge fund sources consulted by The Armchair Trader last week, including those close to the FBI in the US, indicated that law enforcement would rather money launderers continue to use cryptocurrency markets than traditional avenues like lightly regulated offshore banks, as blockchain makes their activity easier to track.
From 8 October 2023 financial promotions of crypto-assets will be regulated by the FCA, the first financial regulator in the world to regulate the promotion of crypto-assets. Castledine said this represented a fundamental change to the way crypto-asset activities were dealt with in the UK.
Castledine added the definition of financial promotions for crypto assets had been kept deliberately broad to capture as many different types of financial promotion as possible, adding the FCA expected the majority, if not all, crypto-asset firms to fall within scope of the regulations.
Unlimited fines and prison time
Moreover, the FCA considered any firm promoting crypto-assets “wherever they are globally” to be within scope of its regulations. Any firm that did not comply with the new financial promotions regulations could face unlimited fines and the directors up to three years in prison.
Social media firms, other intermediary firms and app stores played a significant role in the promotion of crypto-assets in the UK, Castledine said, and the regulator expected them to take action to prevent the illegal promotion of crypto-assets, making it clear the FCA expected them to “cease supporting and facilitating unregistered crypto firms illegally marketing into the UK”.
Enforcement may of course be a different matter altogether, especially as many unregulated crypto firms make use of offshore jurisdictions where the FCA holds little sway. It is unlikely that crypto and/or other digitised assets will become any less accessible, which remains a key challenge for the regulator.
