What do Businesses Need to Look Out For in Their Crypto Promotional Materials?

The contemporary financial landscape is in a constant state of flux. Cryptocurrencies and blockchain technologies are somewhat central to this modern-day renaissance as they threaten to upheave the status quo. 

The UK, being a traditional financial hub, and London, being the financial capital of the world, is no stranger to this digital evolution. In fact, with a country being so dependent on its capital city and financial sector, all eyes are on these new developments—particularly the eyes of regulators. Crypto promotions UK has therefore become a point of focus.

Crypto in the UK is much like the rest of the world; it reflects a global trend of acceptance (whether willingly or unwillingly) and integration of digital assets into mainstream financial systems. However, for all of blockchain’s potential, there lies huge risks too, creating the need for robust and rapidly evolving regulation to protect both the markets and the consumer.

This guide is all about promoting your crypto business—something that is becoming increasingly tricky. Of course, nobody sets out to create new solutions only for them to be lost or ignored. Yet, it is becoming challenging to expand crypto projects and get eyes on your idea without breaking regulatory compliance. Between you and the many crypto consumers lies a regulatory body—the Financial Conduct Authority (FCA)---that is determined to ensure a level playing field.

Understanding the Regulatory Landscape

The government has shown a keen interest in refining the regulatory framework surrounding crypto asset promotions, as seen in recent amendments to the Financial Services and Markets Act 2000, specifically concerning registered crypto asset businesses​​. On the other hand, the FCA, a watchdog for financial markets, has taken strides in regulating the promotion of crypto assets to ensure clarity and fairness in marketing communications​.

The regulatory bedrock of crypto promotions UK is embedded in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. However, as the crypto sector evolves, so does the regulatory landscape. A notable amendment is the introduction of new rules by the FCA, effective from October 8, 2023, which are designed to fortify the existing regulatory framework in light of the growing popularity and intricacies of crypto assets​​. But this time, the FCA got very specific about what you can and can’t do as a crypto marketing manager.

It's the responsibility of crypto companies themselves to stay knowledgeable on these regulatory shifts because they are fast-changing. At the best of times, marketing draws a fine line between honest attention-seeking and manipulation. But, the stakes are low when advertising your local garage or organic food store. When the money—and sometimes livelihood—of the consumer is on the line, responsibility, not just compliance, is paramount.

Clarity in Promotion

Central to the FCA's guidelines on crypto asset promotions is the notion of clarity. Promotions must be “clear, fair, and not misleading” according to the new set of expectations. This triad of principles is crucial in ensuring that potential investors have a sound understanding of what they are getting into. 

The onus is on crypto firms here. They must delineate the risks and rewards associated with their products or services in a balanced and transparent manner​.

A well-tempered promotion should provide a panoramic and holistic view of the information, covering both the potential upsides and the inherent risks. Think about the way CFDs must be promoted in the UK due to their risks of leverage. This balanced narrative empowers potential investors to make informed decisions, a cornerstone of a mature and responsible crypto market.

In other words, customers must be treated with the respect of serious investors (not unserious consumers), but not with the assumption that they have prior or implicit knowledge of crypto. This duality is crucial to ensure everything is geared towards the beginner. If you are sending out a weekly newsletter to your email subscribers, you still cannot assume that they fully understand the technology, the product/solutions, or the risks.

Mandatory Disclosures

In the space of financial promotions, transparency is a hallmark of trust and integrity. Advertising crypto in the UK must adhere to specific disclosure mandates set forth by regulatory authorities to foster a culture of openness and informed decision-making among potential investors.

One such mandate relates to firm identification in promotions. It's important that promotions clearly identify the firm behind the financial promotion, thus providing a layer of accountability and a point of reference for consumers. This disclosure is not just a regulatory checkbox, but a step towards building a rapport with the market audience.

Equally important is the incorporation of warnings in promotions, such as the cautionary statement "capital is at risk" as touched on earlier. Such disclaimers serve as a reality check, reminding investors of the inherent risks associated with crypto assets. Again, no prior knowledge should be assumed. 

The FCA has gone a step further by stipulating a clear risk warning in promotions, similar to those found in traditional high-risk investment products. The warning should unequivocally state the high-risk nature of the investment and the potential for total loss of capital, guiding investors to make careful decisions​. This is to avoid conflating investments with entertainment,  consumption, or transactional utility.

The recent introduction of a cooling-off period for first-time investors further exemplifies the FCA’s proactive approach towards creating a safer investment landscape. Starting from October 8, 2023, new advertising rules mandate a cooling-off period, offering a temporal buffer for first-time investors to reconsider their investment decisions. This measure aims to curb impulsive decisions that could lead to regrettable financial losses. 

More specifically, this cooling-off period means that 24 hours must pass before sending promotional material to a new customer. This is designed to protect first-time customers. Again, this is another way to create an assumption that everyone is a beginner.

The FCA has also clamped down on certain incentive schemes like 'refer a friend' bonuses, which were found to entice unsophisticated investors into the crypto space without a clear understanding of the risks involved​. These regulatory tweaks underscore a broader narrative of promoting responsible investment behaviours among consumers.

Compliance With Regulatory Authorities

The relationship between crypto companies and regulatory authorities is a dynamic one. A significant aspect of compliance revolves around ensuring that promotions do not inadvertently imply endorsement by regulatory bodies like the FCA. Such misrepresentations could mislead investors into assuming a level of safety or approval that doesn’t exist, thus distorting the risk perception associated with the investment.

To mitigate this, crypto companies need to ensure that their promotions are vetted and approved by FCA-authorised persons if they are not authorised themselves. This two-pronged approach—where a promotion can either be communicated by an FCA-authorised person or be approved by one if made by an unauthorised entity—lays down a structured pathway for lawful communication of crypto asset promotions to UK consumers​​.

The steps to getting promotions approved entail a meticulous examination of the promotional content to ensure its adherence to FCA guidelines. This includes ensuring clarity, fairness, and a balanced representation of risks and rewards. 

Furthermore, it demands a demonstration of due diligence in providing accurate and up-to-date information, devoid of any misleading claims or implications.

The FCA’s remit now encompasses financial promotions for crypto products and services, a transition from the Advertising Standards Authority’s (ASA) previous oversight. This shift underscores the FCA’s intent to tighten the regulation around misleading and irresponsible crypto promotions. The FCA are likely thinking, “If you want it done right, do it yourself.”

The essence of compliance lies in growing a culture of compliance within the organisation. This is so that every person in the company, from top to bottom, lives and breathes compliance. Otherwise, if a box-ticking approach is taken, there will be mistakes. Every word—every Tweet—of every promotional material must fit inside this new framework. The benefit here isn’t just compliance, but a positive brand image of trust that will grow within the project’s community.

Bridging the Knowledge Gap: Educating the Masses

A fundamental challenge facing the adoption and responsible investment in cryptocurrencies is the prevailing knowledge gap among the masses. While the UK is a traditional financial hub, the newness (and inherent complexity) of blockchain technology can be bewildering to many. 

Education plays a role in the FCA’s new updates, but it should also be seen as a promotional opportunity. Robust educational initiatives are there for every party—the crypto firm, the consumer, and the regulator.

Crypto companies should consider developing educational materials and platforms that aim to demystify blockchain technology. This may include simple explainer videos, webinars, and interactive learning platforms that shine a light on the underlying technology, its potential benefits, and importantly the associated risks. 

If this is too much of an undertaking, collaborations with educational institutions and financial literacy organisations can play a pivotal role in your brand awareness too.

Embracing Digital Channels

The importance of leveraging online platforms for marketing cannot be overstated. The array of digital channels at everyone’s disposal—social media, newsletters, app screens, and websites—offers an opportunity for marketing endeavours. 

Social media platforms are potent tools for brand awareness and engagement. They offer a platform for crypto companies to interact with potential investors, share insights, and foster a community. However, the ease of writing a social media post can often be its downfall—quick replies and hastily reacting to news can get you in regulatory trouble (i.e. accidental promotion without stating the risks). So, here it is advised to have an additional layer of screening everything that gets published under the representation of the project; a senior to double-check that every post is compliant.

Newsletters, on the other hand, offer a more controlled medium to disseminate information. They can be tailored to comply with regulatory guidelines, providing a balanced view of the crypto offerings. Their longer format serves as a channel for educating the audience.

Preparing for Future Regulations

The FCA's ongoing efforts to provide additional guidance for crypto asset promotions underscore how they see crypto: an inevitable force that will have a mainstream role in our economy. They no longer see it as a fringe fad that requires minimal attention. This means that we need to be anticipating more changes on the horizon.

The FCA has been open to discussions and feedback from industry stakeholders, as seen in its consultation period for new advertising rules, which allowed entities to voice their opinions and concerns​. This is a good idea to get involved with, as being a part of the discussion will have various benefits.

Engaging legal experts will provide invaluable insights. This proactive approach can help in understanding the nuances, as well as planning for compliance ahead of time.

It’s also not just about educating your audience, but your team too. 

Fostering a Healthy Investment Ecosystem: the Role of Community

Community engagement is not a new concept in the crypto world. Many successful crypto ventures have thrived on the back of strong, engaged communities, as they help create a healthy investment ecosystem and sustained interest. 

Avoiding overhyped, risk-taking promotions isn’t just about compliance, but it can help avoid rug pulls and pump and dumps. Sometimes, these events occur outside your control—perhaps an influencer takes your project hostage for their own gain. But, if your audience is always engaged and well-educated, thanks to you, they will be immune to such volatile behaviour that may threaten your project.

An engaged and educated community can also educate you, in return. The quality of feedback will increase, and there will be a continuous high-quality feedback loop of iteration over your project. Sometimes, projects and solutions are, unfortunately, complex, and having an educated audience may help inform newcomers, thus doing the work for you. 

When searching for a new project, many people look to places like Reddit. You can get involved on these platforms, but nothing is more productive and powerful than an educated community engaging among itself.

Conclusion

The influx of crypto companies in the UK's market is both exciting and challenging; much like the influx of crypto enthusiasts. Regulatory compliance—particularly when promoting your project—should not be seen as a burden. Instead, it should be leveraged as an opportunity to grow an engaged, well-informed community that will create a symbiotic relationship. For guidance and advice for your crypto promotions, please get in touch with a member of the Englebert team, we are leading experts in UK regulatory compliance.