Cinema-goers reclining in their seats ready to watch Dumb Money may have been surprised to see an advert from the FCA pop up. Concerned that viewers may try to copy Paul Dano’s bandana-wearing Roaring Kitty, the leader of the 2021 ‘GameStonk’ movement, the advert flashes a clear warning about the financial risks of day trading.
The FCA’s decision to take out such an advert is not wholly surprising. After all, the regulator remains unequivocally committed to protecting and educating retail investors. What’s more, it is precisely this commitment that underpins the FCA’s new crypto marketing regime, which obliges firms advertising to UK consumers to be authorised by the FCA or have their marketing authorised in advance.
On the very first day the rules took effect, the FCA fired warning shots – or 146 to be precise – to crypto firms, notifying them of ‘their part in protecting UK consumers from illegal promotions’. The speed of the FCA’s action was perhaps as impressive as its reach and leaves no doubt that the FCA will enthusiastically police the regulatory perimeter. Non-compliance, as has been made clear, will simply not be countenanced.
Of course, such an action has raised concerns that the regulator is being overly bullish, with its desire to protect consumers potentially even risking the UK’s broader ambition to become a pre-eminent ‘crypto hub’. Indeed, it has been suggested that, on account of the new rules, international crypto firms may have to halt some – if not all – UK operations.
Such concerns are misplaced and are based on a fundamental misunderstanding of the UK’s ambition to become a crypto hub.
Put simply, the ambition underpinning the Government’s desire to snatch the crypto crown is that the machinery of the crypto market should be based in the UK. The aim is to create an entire domestic crypto ecosystem – from the brokers through to the marketing and exchanges – rather than simply act as a market for foreign firms to sell to UK consumers.
In any new regime there will be teething problems such as the lack of regulated firms able to approve financial promotions in this space. But the struggles of unregistered international crypto firms to comply with the new marketing rules, is not antithetical to the UK’s broader crypto ambitions. Rather, in helping educate consumers about risk and regulating adverts, the new rules represent a vital step on the path to creating the flourishing, carefully-governed hub to which the Government aspires.
The future steps on the path are already clear: the Treasury has confirmed the broad shape of the future regime in its response to its February consultation, for cryptoassets generally and fiat-back stablecoins specifically. The market can take comfort from knowing the direction of travel.
The FCA has also given firms a grace period of three months to comply with the crypto promotion rules that it considers ‘require more technical development’ and, in that same spirit, by rolling everything out slowly the market will have time to adjust. This is no bullish regulator, but a practical and commensurate one.
The UK’s approach is a middle way between what firms face in the US and EU. In the US, firms are currently having to work through a melange of court rulings as regulatory uncertainty continues. In the EU, meanwhile, the MICA Regulation was heralded as the first fully developed digital assets regulation regime. But while the MiCA Regulation is comprehensive, it will only come fully into effect in December 2024, despite the Level 1 text being written prior to the significant market turmoil in 2022. There are also concerns that, due to the EU’s ‘passporting’ rules being applied in MiCA, one weak link among the regulators could expose the entire EU.
The UK’s is the better way and the FCA should be applauded both for the rules it has drawn up and its measured approach to enforcing them. The UK is in the midst of a process, but one that should both help its reputation in the crypto industry whilst protecting retail customers from undue risk. Given the need for those aims to remain in balance rather than competition, the UK’s patient approach is surely the right one.