Treasury to crack down on crypto mis-selling
Cryptocurrency buyers are to get protection from misleading promotions after the government published plans to strengthen the rules on advertisements.
A consultation response published today aims to bring crypto assets within the scope of financial promotions legislation.
It means crypto assets will be held to the same standards as other financial promotions such as stocks, shares, and insurance products.
Around 2.3 million people in the UK are now thought to own a crypto asset with their popularity rising, though research suggests that general understanding of crypto is declining and some users may not be fully aweare of what they are buying. The Treasury says this poses a risk that these products could be mis-sold.
Chancellor Rishi Sunak said: “Cryptoassets can provide exciting new opportunities, offering people new ways to transact and invest – but it’s important that consumers are not being sold products with misleading claims.
“We are ensuring consumers are protected, while also supporting innovation of the cryptoasset market.”
Laura Suter, head of personal finance at investment platform AJ Bell, said: “The UK has followed in the footsteps of Spain and Singapore in cracking down on cryptocurrency advertising, with new rules bringing the adverts in line with other financial promotions.
“One in 20 UK adults either currently own cryptocurrency or have owned it in the past, showing just how widespread cryptos have become.”
She added: “You only have to glance through a few cryptocurrency adverts to see that many overstate the potential returns on offer and fail to clearly lay out how much risk individuals will be taking.
“The Advertising Standards Agency has already been banning individual crypto adverts that it deems misleading or understating the risk involved in the market, but this new move by the Government will lead to a wholesale tightening of the rules governing adverts.”
Ms Suter warns, however, that the FCA’s own research shows that a crackdown on advertising will have a limited impact. This is because most people find out about cryptocurrency elsewhere and very few are encouraged to actually buy it from an advert.
She says targeting social media may be a more effective way to control mis-selling.
“The regulator’s data showed that only 2% of the people it questioned were led to buy crypto from an advert when they previously hadn’t planned to, and just 5% who were thinking about buying made the leap because of an advert,” she said.
“Overwhelmingly people hear about crypto through social media, with the FCA finding that 39% of people saw ads for crypto on Instagram, Facebook or other social media, compared to 13% for traditional advertising in newspapers or TV.
“While the move will help some people, it won’t stop the outright scams that have exploded off the back of Bitcoin and other cryptos soaring in price.
“What would have a far bigger impact is cracking down on social media accounts where people claim to have made their millions from buying Bitcoin, most of which are ultimately scams or glorified pyramid schemes.”