Giving away free non-fungible tokens (NFT) or cryptocurrencies through airdrops to promote investing in digital assets would be prohibited after the U.K. Financial Conduct Authority’s (FCA) new rules come into effect, an official at the regulator told CoinDesk.
The U.K.’s strict crypto financial promotions rules will come into effect on Oct. 8, according to a report the FCA published on Thursday. Under these rules, crypto will be categorized as a “restricted mass market investment,” and will require adverts on crypto to have clear risk warnings. What’s more, incentives for the general public to invest in cryptocurrencies will be banned.
Crypto companies and celebrities in the past have presented clients and fans with free NFTs that are tied to a project’s blockchain or represent real world assets. Projects have also given out crypto airdrops as part of broader marketing initiatives.
These free NFTs and airdrops, when used to promote investing in crypto products, could result in consumers buying crypto that they realize “can be problematic later,” said Matthew Long, director of payments and digital assets at the FCA.
Crypto airdrops and NFTs themselves will not be banned – merely promotions involving airdrops, said Long, who was appointed last year to lead the FCA’s crypto work.
When the FCA consulted on its marketing rules last year, respondents largely disagreed with proposals like banning incentives, treating crypto as a mass market investment and blocking new investors from getting non-real-time promotion offers (DOFP), the FCA’s policy document from Thursday said.
Typically, only entities that are authorized by the FCA can approve their own ads. Since there is currently no regime in place that allows the FCA to fully authorize crypto firms, the government has made way for a limited time exemption that will allow crypto firms registered with the FCA to comply with its anti-money laundering requirements to approve their own ads starting in October.
Eventually, however, only FCA-authorized entities will be able to approve advertisements. Some in the industry fear the requirement may be too restrictive.
“The requirement that all approvers of financial promotions have an understanding of crypto assets and have permission to act as an approver also has the potential to introduce an overly restrictive regime, based on the incredibly small number of organizations which would meet that criteria for approver status,” Su Carpenter, director of operations at lobby group CryptoUK said in a statement.
The FCA plans on implementing the above measures regardless of industry pushback.
Long said that the FCA did listen to the respondents who contributed to its consultation last year and chose rules that it believed were the “safest possible set of rules."
Several lawyers CoinDesk spoke to welcomed the regime as something that would ensure consumers are protected.
“The stability and oversight of the latest FCA changes will potentially enhance consumer and market confidence in the digital assets sphere,” Will Charlesworth, crypto assets partner at U.K.-based Keystone Law said in a statement.
Since January 2020, the FCA has received 318 crypto applications for registration, and 41 crypto firms have managed to complete the registration process. The regulator has faced some criticism for its registration regime with some companies complaining it’s too lengthy.
“They are high standards, and they are high standards for a reason, because we want custody to be safe and we don't want money laundering,” Long said, talking about the registration regime. He added that the FCA has dialogues with crypto companies on a weekly basis.
The U.K. recently closed a consultation on new rules for the crypto sector and proposed a new authorization regime for all crypto firms – including those already registered with the FCA – that would be run by the regulator.
Long said the FCA’s focus is on six key areas, which includes dealing with fraud and cross border risk as set out in a recently published report by international securities regulator IOSCO addressing investor protection and market integrity concerns.
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