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UK’s Financial Conduct Authority (FCA) today introduced tougher rules for advertising high-risk financial products such as non‑mainstream pooled investments, speculative illiquid securities, and peer‑to‑peer (P2P) platforms, among others.
The FCA also stressed that the new guidelines don’t yet apply to crypto promotions, which will have a separate set of rules once the government and parliament confirm “how crypto marketing will be brought into the FCA's remit.”
Nevertheless, the agency said that “these rules are likely to follow the same approach as those for other high-risk investments.”
According to the FCA, “crypto remains high risk, so people need to be prepared to lose all their money if they choose to invest in cryptoassets.”
We’re strengthening our rules for firms communicating and approving financial promotions for high risk investments https://t.co/rGwpTSysKK
— Financial Conduct Authority (@TheFCA) August 1, 2022
Under the new rules, firms that approve and issue marketing materials will be required to have “appropriate expertise,” while “better checks to ensure consumers and their investments are well matched” will be needed for firms marketing some types of high-risk investments.
The FCA also warned that “clearer and more prominent risk warnings” will have to be in place, and went as far as declaring that “certain incentives to invest,” for example, “refer a friend bonuses," are now banned for good.
The new guidelines are based on the “more assertive and interventionist approach to tackling poor financial promotions, reducing the potential for unexpected consumer losses,” the agency said in a statement.
“We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk,” Sarah Pritchard, executive director for markets at the FCA, said in a statement.
She added that although the FCA’s “new simplified risk warnings are designed to help consumers better understand the risks,” firms that are marketing some types of high-risk investments “have a significant role to play too.”
“Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” said Pritchard.
High-risk investments in the UK and the FCA’s role in their supervision came under scrutiny after the collapse of London Capital & Finance (LCF), an FCA-regulated financial services company that promoted risky and non-regulated investment products such as mini-bonds.
LCF went into administration in January 2019, leaving 11,600 investors in mini-bonds facing losses of up to £237 million ($290 million).
UK takes on misleading crypto ads
When it comes to regulating promotions related to investment products involving cryptocurrencies, the UK government has been raisings its concerns as far back as July 2018.
In a report outlining its approach to crypto assets and distributed ledger technology in financial services, Her Majesty’s Treasury said that “adverts often overstate benefits and rarely warn of volatility risks, [as well as] the fact consumers can both grow and lose their investment, and the lack of regulation.”
This was followed by a plan proposed by the Treasury in July 2020 that would see the FCA assume control over a “regulatory gateway” that crypto companies looking to advertise their products in the UK must pass through.
In January this year, the British government introduced a new legislation designed to protect consumers from misleading cryptocurrency advertisements.
The hope is that the authorities will bring all crypto-related advertising in line with financial promotions legislation in a bid to “increase consumer protection while encouraging innovation.”