Citing concern over investor protection, the City watchdog suggests that customers should take a brief period to educate themselves further about the risks involved.

Under the new rules imposed by the UK financial watchdog, one key requirement is the introduction of a 24-hour “cooling-off” period specifically for first-time investors. This pause allows investors to take a step back and reconsider their decision before proceeding with this type of risky investment. Additionally, the practice of offering ‘refer a friend’ bonuses will be prohibited.

The new regulations also require firms promoting crypto products or services to include a clear risk warning in their promotions and ensure that adverts are transparent, fair, and devoid of misleading information.

Starting from 8 October, these warnings should inform customers that they should not anticipate protection in the event of crypto investment losses and should be prepared to accept the possibility of losing all invested funds.

Meanwhile, crypto firms must verify that individuals have the necessary knowledge and experience to invest in cryptocurrencies.

“The crypto industry has been calling for clear regulation that protects consumers and the many legitimate firms in this space. Crypto is an emerging industry and protecting the retail investor is key to both retail adoption and long-term growth,” said Michael Silberberg, Head of Investor Relations at AltTab Capital.

The regulatory body highlighted the significant growth of crypto ownership in the UK based on recent research findings. According to a survey commissioned by the FCA, the estimated ownership of crypto assets in the country has more than doubled between 2021 and 2022, with 10% of 2,000 people surveyed stating they own cryptoassets.

Nevertheless, the FCA said that a dearth of regulation around cryptocurrencies and revenant financial products had left investors exposed to many risks without any of the protections usually afforded to retail investors, such as access to compensation. As result, the watchdog reported a surge in crypto scams, with the number of reported cases escalating from 1,619 in 2019 to 6,372 in 2021.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice. We are working on additional guidance to help them meet our expectations.”

The new regulations are in line with government legislation that has expanded the regulatory oversight of crypto promotions. Providing the FCA with power to regulate the promotion of certain types of cryptoassets, for the first time, was also the quickest way of doing this and stamping out misleading advertising.

The Financial Conduct Authority (FCA) has cited instances where certain crypto promotions were reprimanded by the Advertising Standards Authority (ASA). One such example involved cryptocurrency ads promoting Arsenal’s fan token. The agency labeled two promotions of Arsenal’s $AFC for irresponsibly taking advantage of consumers’ inexperience and for failing to illustrate the risk of crypto investments.

“These are significant measures in proactively ensuring consumers fully understand the risks associated with crypto investments. There are currently over 25,000 different cryptocurrencies, encompassing a whole variety of exchange and utility tokens, stablecoins and NFTs. Some of these are already being treated as viable investible assets, but not every one is a suitable investment opportunity for consumers. With cryptocurrencies, as with any investment, it’s vital that consumers do their research,” said Haydn Jones, Global Lead of Blockchain and Cryptocurrency Solutions at Kroll.

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