FCA cracks down on marketing of high-risk crypto financial products

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The city watchdog is cracking down on the marketing of high-risk financial products, including cryptocurrencies.

Under his suggestions in a consultation published on January 19financial promotions by direct offer can only be made to investors classified as “restricted”, “high net worth” or “certified sophisticated”.

“Too many people are driven to invest in products they don’t understand and which are too risky for them,” Sarah Pritchard, executive director of markets at the FCA, said in a statement.

The FCA’s draft rules, published on January 19, would ensure that companies approving and disclosing financial marketing have “relevant expertise and understanding of the proposed investment”, the statement said.

The consultation follows the Treasury’s January 18 announcement that crypto advertising would now be regulated by the FCA, as digital currencies continue to rise in value and popularity.

“People need clear and fair information and appropriate risk warnings if they are to invest with confidence, which is the central goal of our consumer investing strategy,” Pritchard said.

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The rules would also improve risk warnings on advertisements and ban investment incentives, such as sign-up money or referral bonuses.

“The regulator is right to differentiate between the business of responsible investment firms that help people achieve their financial goals with a long-term investment mindset, from unscrupulous firms that promote high-risk investments to investors for whom they are probably not suitable,” said Kat Mann, savings and investment specialist at digital wealth manager Nutmeg.

“As the cost of living rises rapidly, it’s understandable that people are looking for quick ways to increase their savings,” she added. “But high-risk investments aren’t really investments – they’re bets.”

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During the pandemic, investments in cryptocurrencies have skyrocketed, as have advertisements encouraging consumers to buy them. According The Guardianthere were a record number of crypto advertisements on public transport in 2021, especially on the London Underground.

According to the rules, certain crypto assets would be categorized as “restricted mass market investments” and only sophisticated and wealthy investors could invest in them.

If the FCA’s proposals are accepted, “it should improve decision-making and change investment behavior so that high-risk investments remain largely small constituents of investors’ portfolios,” said analyst Nathan Long. Principal at Hargreaves Lansdown.

The deadline for submitting comments on the proposals is March 23. The final rules will then be confirmed in the summer of 2022.

To contact the author of this story with comments or news, email Bérengère Sim

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