Crypto-Asset Adverts – The New Laws

What is a Crypto-Asset advert?

There are various crypto asset types, they are commonly known as cryptocurrencies such as Litecoin, Ripple, Bitcoin, and Ethereum. With crypto assets, you will need to use cryptographic techniques to access digital assets. It will act as a medium of exchange for all financial transactions.  

Crypto assets can be exciting bringing new opportunities to make profit, but misleading adverts can cause harm to consumers.

Why is Crypto-Asset risky?

Some users may not understand what they are buying in to, with adverts promoting financial gain and how to effectively “get rich quick”. What it fails to highlight is the risks associated with Crypto-Assets.

Crypto investment risks include:

• Market price risk – with highly unpredictable assets, there is a risk that you need to sell during a drawdown period, or that an entry price is less than optimal (and there is a long wait for returns to be realised).

• Liquidity risk – many assets, including crypto venture capital and traditional private debt, are extremely illiquid. Illiquidity is lessened by limiting exposure to small-caps and lockups or matching long-term funds with long-term positions.

• Counterparty risk – a borrower, exchange or custodian could fail, resulting in lost assets. This risk is quite low in distributed finance. Exchanges tend to be insured.

• Operational risk – trading and transferring assets has a unique set of risks that differ from those in traditional finance. Secure management of keys is mandatory in crypto.

New laws for consumers

Chancellor Rishi Sunak said the new rules would ensure consumers are protected, “while also supporting innovation of the crypto-asset market”.

“Crypto-assets 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” he said.

The UK government is eager to crackdown on misleading advertisement of Crypto products, as the new decision to bring in these types of laws will diminish the risks of consumer harm. It will ensure people have the correct information before making investment decisions.

According to the government website “This will be done via secondary legislation to amend the Financial Promotion Order, which sets out the investments and activities to which the financial promotion regime applies. Under the Financial Services and Markets act 2000, a business cannot promote a financial product unless they are authorised by the FCA or the PRA, or the content of the promotion is approved by a firm which is. Firms that wish to promote such investments and activities must comply with binding rules that financial promotions must be fair, clear, and not misleading”.