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U.K. financial watchdog to ban promotional incentives

TL;DR

  • U.K. financial watchdog imposes strict rules on free NFTs and crypto airdrops, banning promotional incentives.
  • Under these rules, cryptocurrencies will be classified as “restricted mass market investments,” necessitating clear risk warnings in any advertisements related to crypto.
  • It is important to note that while the promotion of airdrops and NFTs themselves will not be banned, the FCA’s restrictions specifically target promotions involving airdrops.

In a move that could significantly impact the crypto industry, the U.K.’s Financial Conduct Authority (FCA) is set to implement new rules that would prohibit the distribution of free non-fungible tokens (NFTs) and cryptocurrencies through airdrops as part of promotional campaigns. An official at the FCA confirmed the impending restrictions, stating that after the rules come into effect on October 8, such promotional activities aimed at encouraging investment in digital assets would be banned.

The FCA’s report, published on Thursday, outlines the upcoming stringent regulations governing crypto financial promotions. Under these rules, cryptocurrencies will be classified as “restricted mass market investments,” necessitating clear risk warnings in any advertisements related to crypto. Furthermore, any incentives offered to the general public to invest in cryptocurrencies will be prohibited.

In the past, crypto companies and celebrities have utilized free NFTs and airdrops as marketing tools, often tying them to blockchain projects or real-world assets. However, the FCA’s Matthew Long, director of payments and digital assets, expressed concerns that these promotional tactics could mislead consumers into purchasing cryptocurrencies which could pose problems later on.

It is important to note that while the promotion of airdrops and NFTs themselves will not be banned, the FCA’s restrictions specifically target promotions involving airdrops. Long clarified that the FCA sought to address potential issues surrounding consumer protection and risk awareness. The FCA’s consultation on marketing rules last year revealed that many respondents disagreed with proposals to ban incentives, treat crypto as a mass market investment, and restrict new investors from non-real-time promotion offers.

U.K. government long term plan

Currently, only entities authorized by the FCA can approve their own crypto advertisements. Recognizing that there is no comprehensive authorization regime for crypto firms, the U.K. government has introduced a limited-time exemption that will allow FCA-registered crypto firms to comply with anti-money laundering requirements and approve their own ads from October onwards. However, the long-term plan is to limit advertisement approvals to FCA-authorized entities, a move that has raised concerns within the industry about potential restrictions.

Critics argue that the requirement for all financial promotion approvers to have a deep understanding of crypto assets and permission to act as approvers could create an overly restrictive regime, considering the limited number of organizations that would meet such criteria. Lobby group CryptoUK’s Director of Operations, Su Carpenter, expressed these concerns, highlighting the potential impact on the industry.

Despite pushback from some industry stakeholders, the FCA remains committed to implementing the proposed measures. Long assured that the FCA carefully considered the feedback received during the consultation and selected rules that it believed would provide the safest possible environment for consumers and the market. Will Charlesworth, a crypto assets partner at Keystone Law, believes that the FCA’s changes will ultimately enhance consumer and market confidence in the digital asset sphere.

Since January 2020, the U.K.’s FCA has received 318 crypto registration applications, with 41 crypto firms successfully completing the registration process. However, the regulator has faced criticism for the perceived lengthiness of the registration regime. Long defended the high standards, emphasizing the importance of ensuring custody safety and preventing money laundering. He also revealed that the U.K. FCA engages in weekly dialogues with crypto companies.

Recently, the U.K. concluded a consultation on new rules for the crypto sector, proposing an authoritarian regime to be overseen by the FCA, which would cover all crypto firms, including those already registered with the authority.

The FCA’s focus on six key areas, including combating fraud and addressing cross-border risks, aligns with a report published by the International Organization of Securities Commissions (IOSCO) that addresses concerns regarding investor protection and market integrity. These initiatives reflect the U.K.’s FCA’s commitment to ensuring the safe and regulated growth of the crypto industry.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Lacton Muriuki

Lacton is an experienced journalist specializing in blockchain-based technologies, including NFTs and cryptocurrency. He dabbles in daily crypto news rich with well-researched stats. He adds aesthetic appeal, adding a human face to technology.

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