New rules regarding promotions in the cryptocurrency industry are set to take effect in the UK on October 8. These rules require crypto firms to provide clear risk labels and make system changes to better warn potential customers of investment risks. Some international crypto firms serving UK clients have decided to pause certain services until they are compliant with the new rules. Local regulators are concerned that some overseas firms are not ready to comply with the regime. Crypto firms serving UK customers are preparing for the country’s tough new rules on advertising, with some announcing that they are cutting off local clients from accessing certain services in order to comply. Only firms that are registered with the Financial Conduct Authority (FCA) as virtual asset service providers have the privilege of authorizing their own promotions in the country. Unregistered firms like Luno and ByBit have said they are halting services to UK clients ahead of the October 8 effective date for the rules, while payments giant PayPal said it was suspending some crypto services until it is compliant with the new rules.
The FCA consulted on a promotions regime for crypto over a year ago, but its guidance only came out a few months ago. Many firms feel that there was too short a time period between guidance being issued and the implementation date. Su Carpenter, director of operations at lobby group CryptoUK, said that many firms are nervous about their interpretation of the guidance and will be taking a slow and cautious approach to their future financial promotions. The FCA is allowing firms to apply for a three-month extension to make the necessary changes. However, the regulator is concerned that some international firms are not interested in complying with the regime.
Under the new rules, any invitations or benefits offered to a person to invite investment would be classed as a financial promotion. Crypto firms operating online must make changes to their websites to comply. The FCA said that firms have faced challenges implementing a 24-hour cooling period for first-time buyers and putting in place measures to assess if certain products are appropriate for clients. Firms such as Moonpay are working to develop the necessary platform changes and review their content to ensure compliance with the new guidelines. Crypto exchanges Bitstamp, Bitpanda, Kraken, and crypto platform Zumo, which are registered with the FCA, have stated that they are not planning to halt operations.
Unregistered companies, whose ads are not authorized, must stop communicating crypto services to UK clients to comply with the upcoming rules. Bybit and Luno have announced that they are pulling back from the UK market in light of the new rules. Bybit will suspend UK operations and Luno is planning to stop some UK clients from investing in crypto. The FCA declined to comment on individual firms but expressed positivity towards firms that are making efforts to meet the required standards. The regulator is concerned about a lack of engagement from some unregulated overseas firms in complying with the rules.
The promotions regime examines whether any communication, whether it’s the first solicitation or ongoing business communication, contains a promotional element. Overseas firms can either register with the FCA to approve their own promotions or have an authorized company do so for them. However, crypto advocates fear that not many authorized firms would be willing to approve crypto ads, given the industry’s reputation, especially following the market collapse in 2022. In the future, the FCA will impose additional requirements on firms that approve others’ ads, making it difficult to find someone who meets all the criteria.