Do not “reinvent the wheel” in the regulation of crypto – FinTech industry body tells UK Government.

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Innovate Finance, the independent industry body that represents and advances the global FinTech community in the UK, has voiced a crucial message to the UK government: avoid “reinventing the wheel” when regulating crypto assets. This statement was delivered as part of Innovate Finance’s response to the Financial Conduct Authority’s (FCA) consultation paper, “Guidance on cryptoasset financial promotions” (GC23/1).

The FCA, in its comprehensive strategy to regulate the promotion of crypto assets, has aimed to strike a delicate balance between fostering innovation in the cryptocurrency sector and ensuring robust consumer protection. This initiative comes in response to the fast-evolving landscape of digital finance, where novel challenges must be addressed.

The core components of the FCA’s plan include:

  1. Clearer Guidance: Ensuring that promotional material for crypto assets provides clear and unambiguous information about the nature of the assets, the associated risks, and the suitability of the investment for various consumer profiles.
  2. Heightened Disclosure Requirements: Strengthening the disclosure requirements for firms promoting crypto assets to ensure that consumers have a complete understanding of the potential risks, volatility, liquidity, and regulatory status of the assets being promoted.
  3. Risk Warnings and Consumer Education: Implementing prominent risk warnings in all crypto asset promotional materials to emphasize the speculative nature of these investments and the potential for capital loss. Additionally, the FCA seeks to enhance consumer education about crypto assets to empower individuals with comprehensive knowledge.
  4. Monitoring and Enforcement: Rigorously monitoring the effectiveness of the new rules and enforcing compliance to prevent misleading or overly optimistic promotional material. Firms found in violation of the rules may face significant penalties.

As of 8 October 2023, crypto assets will come under the Financial Promotions regime in the UK. The FCA’s commitment to regulation and its forward-looking approach underline the UK’s intent to remain a global leader in responsible cryptocurrency regulation. The combination of clear guidelines and robust enforcement will contribute to a healthy crypto industry, fostering innovation while prioritizing consumer protection. Innovate Finance stated: “Innovate Finance supports the aim of ensuring that financial promotions for cryptoassets are fair, clear and not misleading. We have consistently called on the Government and regulators not to “reinvent the wheel” in regulation of cryptoassets. If existing (well-understood) rules work with minor adjustments, they should be maintained and used. This is evident as they provide a ready-made, fully fleshed out and tested approach, supporting speed of implementation and clarity. We are therefore pleased that the FCA has chosen to employ existing financial promotion rules proportionately”. 

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