UK regulators are cracking down on crypto-asset advertisements including those featuring influencers. This week both HM Treasury and the Financial Conducts Authority announced consultation into the regulation of crypto ads. This follows an Advertising Standards Authority investigation in November 2021.
“Are you guys into crypto????” asked Kim Kardashian West in an Instagram Story last June.
Her upload was a brand collab with cryptocurrency token Ethereum Max. The reality TV star turned business mogul was speaking to her then 250 Instagram million fans. But the chair of the Financial Conducts Authority (FCA) was also listening.
“There is no shortage of stories of people who have lost savings by being lured into the crypto bubble with delusions of quick riches, sometimes after listening to their favourite influencers ready to betray their fans’ trust for a fee,” blasted Charles Randell, head of City watchdog, in a September speech.
Randell singled out KKW as an example of a creator peddling cryptocurrencies. “Be prepared to lose all your money”, he warned, explaining that as with any new speculation, it may not end well.
Randell acknowledged KKW’s advertisement was clearly displayed as an ad, but commented that she “didn’t have to disclose” that she was promoting “a speculative digital token created a month before by unknown developers - one of hundreds of such tokens that fill the crypto-exchanges.”
Of course, KKW is not alone in promoting crypto currencies. Boxer Floyd Mayweather promoted Ethereum Max, and accepted the tokens as payment for his fight against the appalling Paul brother, Logan Paul. There are many other examples.
UK regulators crackdown on crypto-asset ads
UK regulators have had enough. In November 2021 the Advertising Standards Authority (ASA) announced that it was investigating a number of crypto-asset ads across different media, where it had concerns about:
- lack of appropriate risk warnings
- the trivialisation of investments in cryptocurrency
- ads taking advantage of consumers’ inexperience or incredulity
- irresponsible advertising (for example, creating a sense of urgency to invest).
HM Treasury to bring promotion of crypto-assets under financial promotions legislation
On Tuesday this week HM Treasury, the government's economic and finance ministry, announced plans to bring the promotion of crypto-assets within the scope of financial promotions legislation. This means the promotion of qualifying cryptoassets would be subject to FCA rules in line with the same high standards that other financial promotions such as stocks, shares, and insurance products are held to. The plan is to achieve this by extend the scope of the Financial Promotions Order (FPO) to include qualifying crypto-assets
FCA announces crypto-asset promotion consultation
Not to be outdone, the FCA announced its own consultation the following day - on Wednesday.
Under the proposed rules, the FCA would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered, improve risk warnings on ads and ban incentives to invest, for example new joiner or refer-a-friend bonuses.
In this latest Consultation Paper, the FCA is proposing changes to:
- the classification of high-risk investments
- the consumer journey into high-risk investments
- strengthen the role of firms approving and communicating financial promotions
- apply the FCA's financial promotion rules to qualifying cryptoassets
Sarah Pritchard, Executive Director of Markets at the FCA, said: 'Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investments strategy.'
The FCA is inviting feedback on its proposals by 23 March 2022. It will consider all feedback before determining its final rules and, subject to the responses received, intends to confirm its final rules in summer 2022.
Picture credit: Kim Kardashian West via Instagram
In September 2021 I wrote an early version of this story reporting on KKW and the FCA chair's speech. That version appeared as my column within the Fourth Floor newsletter: Influencer Marketing Digest. You can read newsletter #22 here.