UK Regulator Publishes Guidance for Crypto Marketing Regime

• The Financial Conduct Authority published its guidance on crypto promotions following a June-August consultation.
• The FCA set out that firms approving crypto promotions for crypto that claims to be backed by a commodity should have sufficient evidence to prove this.

The U.K.'s financial watchdog published guidance on its crypto advertising rules Thursday, clarifying how they need to be applied after a new regime on promotions for the industry took effect on Oct. 8.

The guidelines, which follow a June-August consultation by the Financial Conduct Authority, require firms to include appropriate risk warnings on all communications to U.K. customers that have a “promotional” element. They also mention the need for evidence to support claims made in promotional material.

“While the new rules for firms marketing crypto to U.K. consumers are aligned with the existing rules for other high-risk investments, we’ve engaged extensively with industry and designed this guidance to specifically support crypto firms complying,” Lucy Castledine, the FCA's director of consumer investments, said in a statement.

The guidance says crypto assets claiming to be backed by a commodity will need to prove this. Firms can provide the evidence through disclosures, independent audits and proof of deposits, the FCA said. The industry will need to “demonstrate that claims of stability, such as links to a fiat currency, are bona fide,” according to the document.

As for financial promotions relating to lending and borrowing, specific risks should be disclosed. In addition, complex yield models need to have clear evidence regarding potential rates of return. A complex yield model occurs when person A markets the possibility for person B to transfer crypto to person A so that person B receives a rate of return.

The FCA also wants firms to clearly state the changes to legal and beneficial ownership of assets to customers. Plus, firms will need to conduct due diligence on both the crypto asset and service they are promoting, including ensuring the crypto is not linked to fraudulent activity.

“Firms should not use their regulated status in a promotional way. For example, by using their regulated status to claim or imply a competitive advantage over other firms,” the guidance said.

The regulator has already added 221 firms it deems non-compliant with the new regime to an alert list, and has promised enforcement action on companies that are not careful with approving ads.

Read more: Upcoming UK Rules for Crypto Ad Approvers Spell Uncertainty for Industry

UPDATE (Nov. 2 13:07 UTC): Adds Lucy Castledine, Director of Consumer Investments at the FCA quote in paragraph 3, detail from guidance throughout.