A Guide to Anti-Money Laundering for Crypto Firms

FCA to Strengthen Promotion Rules for High-Risk and Crypto Firms

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Plans to stop misleading advertising by high-risk and cryptocurrency firms have been published by the Financial Conduct Authority (FCA).

A consultation on proposals to strengthen financial promotion rules runs from January 19 until March 23, 2022. It forms part of the FCA’s Consumer Investments Strategy, which aims to address issues related to consumer protection, market integrity, and competition.

FCA figures show that in June 2021 around 2.3 million people in the UK were thought to own a crypto asset – up from 1.9 million in 2020. But the understanding of cryptocurrencies is actually falling, and some users may not fully understand what they are buying.

An Opinium survey, published by the FCA in October 2021, showed that over three quarters (76%) of those questioned felt a sense of competitiveness when placing their money in an investment, wanting to beat their personal best as well as the returns of friends, family, and acquaintances. Over two-thirds (68%) likened it to gambling. 

Just one in five respondents (21%) were considering holding their most recent investment for more than a year, and less than one in ten (8%) for more than five years. This is despite 60% of those surveyed saying that they prefer more stable returns. 

The majority of those who purchased foreign exchange or crypto-assets (57% and 69% respectively) incorrectly believed these to be regulated by the FCA.

One case in which a crypto asset promotion campaign was banned by the Advertising Standards Authority featured ads for Arsenal Football Club ‘fan tokens’ that did not clearly show the ‘token’ was a crypto asset.

Chancellor of the Exchequer, 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 the innovation of the crypto asset market.”

The consultation sets out the government’s plan to bring the promotion of crypto-assets into the scope of financial promotions legislation. This will make them subject to FCA rules in line with other financial promotions such as stocks, shares, and insurance products.

“This will balance the desire to encourage innovation with the needs to ensure that crypto-asset advertisements are fair, clear, and not misleading,” the guidance says.

While this new proposal relates to advertising and so won’t affect existing anti-money laundering legislation, many largely unregulated crypto providers and high-risk firms could find themselves covered by the new advertising rules. For many, it may be the first time they have had dealings with regulators. 

The FCA has now registered 31 crypto businesses, with many more applying. From January 2020, firms carrying out specific crypto asset activities in the UK need to comply with the amended Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs). Under this regime, crypto-asset firms conducting certain activities are required to register with the FCA. 

Next Steps

The government intends to put in place a six-month transitional period from both the finalization and publication of the proposed Financial Promotion Order regime and the complementary FCA rules.

The advertising guidelines complement broader proposals on crypto assets and stablecoins in the UK, outlined in a 2021 government consultation on a regulatory framework for stablecoins. 

Meanwhile, other countries are also attempting to regulate cryptocurrency ads. In January, Spain’s National Securities Market Commission (CNMV) issued new guidelines, to come into force from February 17 2022, that all crypto ads must include the warning: “Investments in crypto-assets are not regulated. They may not be appropriate for retail investors and the full amount invested may be lost”.

The CNMV says this will ensure crypto product advertising offers true, understandable and non-misleading content. “This is particularly relevant in the field of crypto-assets as the absence of a complete regulation is a challenge for investor protection,” it said in a statement.

For cryptocurrency and high-risk firms, these new measures are another indicator of the direction in which regulators are heading. It also provides an opportunity for those who are already FCA registered to demonstrate their compliance to customers and strengthen their reputations. 

You can find out more about the latest developments in the world of crypto, financial crime, and regulation, at the third annual Comply Advantage Conference on February 3rd. Reserve your place today

Plans to stop misleading advertising by high-risk and cryptocurrency firms have been published by the Financial Conduct Authority (FCA). A consultation on proposals to strengthen financial promotion rules runs from January 19 until March 23, 2022. It forms part of the FCA’s Consumer Investments Strategy, which aims to address issues related to consumer protection, market integrity, and competition. FCA figures show that in June 2021 around 2.3 million people in the UK were thought to own a crypto asset – up from 1.9 million in 2020. But the understanding of cryptocurrencies is actually falling, and some users may not fully understand what they are buying. An Opinium survey, published by the FCA in October 2021, showed that over three quarters (76%) of those questioned felt a sense of competitiveness when placing their money in an investment, wanting to beat their personal best as well as the returns of friends, family, and acquaintances. Over two-thirds (68%) likened it to gambling.  Just one in five respondents (21%) were considering holding their most recent investment for more than a year, and less than one in ten (8%) for more than five years. This is despite 60% of those surveyed saying that they prefer more stable returns.  The majority of those who purchased foreign exchange or crypto-assets (57% and 69% respectively) incorrectly believed these to be regulated by the FCA. One case in which a crypto asset promotion campaign was banned by the Advertising Standards Authority featured ads for Arsenal Football Club ‘fan tokens’ that did not clearly show the ‘token’ was a crypto asset. Chancellor of the Exchequer, 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 the innovation of the crypto asset market.” The consultation sets out the government’s plan to bring the promotion of crypto-assets into the scope of financial promotions legislation. This will make them subject to FCA rules in line with other financial promotions such as stocks, shares, and insurance products. “This will balance the desire to encourage innovation with the needs to ensure that crypto-asset advertisements are fair, clear, and not misleading,” the guidance says. While this new proposal relates to advertising and so won’t affect existing anti-money laundering legislation, many largely unregulated crypto providers and high-risk firms could find themselves covered by the new advertising rules. For many, it may be the first time they have had dealings with regulators.  The FCA has now registered 31 crypto businesses, with many more applying. From January 2020, firms carrying out specific crypto asset activities in the UK need to comply with the amended Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs). Under this regime, crypto-asset firms conducting certain activities are required to register with the FCA. 

Next Steps

The government intends to put in place a six-month transitional period from both the finalization and publication of the proposed Financial Promotion Order regime and the complementary FCA rules. The advertising guidelines complement broader proposals on crypto assets and stablecoins in the UK, outlined in a 2021 government consultation on a regulatory framework for stablecoins.  Meanwhile, other countries are also attempting to regulate cryptocurrency ads. In January, Spain's National Securities Market Commission (CNMV) issued new guidelines, to come into force from February 17 2022, that all crypto ads must include the warning: "Investments in crypto-assets are not regulated. They may not be appropriate for retail investors and the full amount invested may be lost". The CNMV says this will ensure crypto product advertising offers true, understandable and non-misleading content. "This is particularly relevant in the field of crypto-assets as the absence of a complete regulation is a challenge for investor protection," it said in a statement. For cryptocurrency and high-risk firms, these new measures are another indicator of the direction in which regulators are heading. It also provides an opportunity for those who are already FCA registered to demonstrate their compliance to customers and strengthen their reputations.  You can find out more about the latest developments in the world of crypto, financial crime, and regulation, at the third annual Comply Advantage Conference on February 3rd. Reserve your place today

Originally published January 28, 2022, updated May 6, 2022

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