New crypto regulations from October should be welcomed
The taming of the so-called ‘wild west’ of crypto continues later this year. In just under three months, on the October 8, a new set of regulations relating to consumer protection will be brought in by the Financial Conduct Authority (FCA).
As far as crypto goes, these new rules relate directly to any invitation or inducement to ‘engage in investment activity’ – in other words, buying some crypto. In practical terms, your website, emails, social media, and, broadly speaking, more or less all the ways you communicate with consumers will be covered by this legislation.
There will be four legal routes to undertake such promotions. In each case, you essentially need to be regulated by the FCA or exempted for a specific reason. But, if you are not and try to sell crypto within the UK, you could end up being jailed for two years and may incur an unlimited fine – so the legislation is backed by real teeth.
Very sensibly, the FCA has taken a ‘same risk, same regulatory outcome’ approach. Crypto will be subject to the same rules as other high-risk investments in the fiat world, with the introduction of measures such as 24-hour cooling-off periods. Promotions must be clearly worded, their statements must be fair, and they cannot be misleading.
We have all become used to this in fiat-related investments – and it would be difficult for anyone to argue there is anything controversial about these steps being brought in. But, in my view, this is a real step forward in the crypto universe. It also means there have to be clear risk warnings, incentives to invest are banned, positive frictions (i.e. circuit breakers, where trading is halted when markets are especially volatile), client categorisation requirements, and appropriateness assessments.
These last two moves are extremely appropriate in crypto. The ‘get rich quick’ promotion of crypto is now effectively dead, but there are clearly people who should not be invested in crypto – generally speaking, either because they do not have the appetite for risk, are in it for the wrong reasons, or cannot afford to bear the potential losses – and these two categorisation and assessments should weed them out.
As Joel Valenzuela puts it: “Crypto isn’t get rich quick tech. It’s freedom tech. Never forget it!” He has lived entirely on crypto since 2016 and lots of people would have been much better off if they had heeded this advice, rather than seeing it as a means of fast and easy speculation.
I’m sure there will be some companies that will stop promoting crypto in the UK, unless they already have a relatively big businesses. The costs of being FCA regulated and monitoring that activity within a company are extremely high, but it does bring both clarity and security for consumers, which should only be welcomed – particularly following many of the events of the last year or so.
It gives me a warm fuzzy feeling to know that, slowly but surely, the spectre of crypto scams is receding as proper rules and regulation come into force. I have previously argued in this column that an appropriately regulated industry can only help with dispelling some of the main misconceptions about crypto, supporting wider adoption in the long term. So, good on ’em, as far as I’m concerned!
Temple Melville is CEO of The Scotcoin Project Community Interest Company (CIC)