FCA introduces crypto cooling off period and tighter ads restrictions

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New regulations from the FCA are going to give first-time crypto investors the opportunity to change their minds with a cooling-off period after opening an account. The FCA is also forcing firms that advertise or promote digital assets, to ensure the advertisements are fit for purpose.

A 24-hour cooling-off period for new crypto investors

The FCA has set out tough new rules applicable to UK crypto investors, which include the introduction of a 24-hour cooling-off period, that will come into existence on October 8th, and which will apply to first-time investors.

Promotions of cryptocurrencies and digital assets must also contain clear risk warnings, and those firms producing crypto adverts and promotions must ensure that they are clear, fair and not misleading in any way.

Interest in crypto investing still growing

Research shows that interest in crypto investing has been growing, doubling between 2021 and 2022, with an estimated 10% of adults now owning crypto assets.
The FCA has previously warned retail investors about cryptocurrencies saying that they should expect to lose any money that they put into the asset class.

So it was always likely that the regulator would clamp down on promotional activities and look to create a regulatory regime in line with its views on other high-risk assets, particularly after the high-profile collapse of FTX and associated entities.

Crypto FOMO

A cooling-off period has not previously been applied to investments in exchange-traded assets, this measure has been introduced in the hopes of reducing “pile-on effects” in which traders and investors rush into crypto positions, driven by a combination of social media coverage and FOMO, or the fear of missing out.

We asked Dan Moczulski MD at eToro UK if he thought that new investors will shy away from the market if their access to crypto is limited.

He said:
“Certainly we approve of new investors being encouraged to do their research and avoid any type of “gut” trading based on a particular current event. Buyer’s remorse can be a terrible thing and so with this in mind, we support the cooling-off period. Having said that, all stakeholders want to avoid forcing the client to move to non-UK jurisdictions in order to participate in any perceived time-dependent price action. I think I would encourage any person considering investing in crypto to simply open an account at a broker, most don’t have any fees to open an account, and then wait. Do your research on both the platform and the asset. Wait as long as you want, and then invest only when you feel comfortable. “

Do the new rules go far enough?

The new rules introduced by the FCA may not go far enough for everyone.
Some MPs have recently called for crypto trading to be treated and regulated in the same way that gambling is treated in the UK.

A move that drew much criticism from members of the UK’s crypto industry.

Speaking about the FCA’s new rules Susannah Streeter, the head of money and markets at Hargreaves Lansdown said:

“The Financial Conduct Authority has shot out of the traps, harnessed with new powers to regulate digital coins and tokens, and is racing ahead with new rules to give consumers extra protection in the crypto Wild West.”

She added:

“The collapse of the once highly popular FTX exchange, which left up to a million people out of pocket, caused shockwaves across the wider financial sector and clearly rattled regulators, prompting them to take action.”

The FCA is not alone in moving to tighten regulation in the crypto space, the US SEC has recently instigated legal action against Coinbase (COIN) and Binance, two of the world’s largest cryptocurrency exchanges.

I welcome the introduction of regulation to crypto trading and investment in the UK, which should act as a safeguard for individual UK investors.

However, I also recognise that many of the bad actors and scammers in the space are not based here, or in any other well-regulated jurisdiction.

As such the FCA must be careful not to drive UK investors off-shore and into the arms of unscrupulous conmen. Something that undoubtedly happened, when the FCA banned the retail trading of cryptocurrency derivatives.

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