The Financial Conduct Authority (FCA), the UK’s financial services regulator, is to seek new powers that will give it greater license to clamp down on the promotion of cryptocurrencies and other digital tokens and assets. The regulator is particularly concerned about a new wave of celebrity influencer promotion of digital tokens.
FCA chairman Charles Randell yesterday stated there is a need for more to be done to protect consumers from speculative digital assets promoted as investments, or with the insinuation that buying them could be financially rewarding. The American celebrity and online influencer Kim Kardashian was singled out as a prime example after she recently promoted a little-known digital token to her 250 million Instagram followers. She was paid for the promotion by the company behind the token.
Randell commented on Kardashian’s plug that
“it may have been the financial promotion with the single biggest audience reach in history”. But that what was promoted “was a speculative digital token created a month before by unknown developers”.
He went on the outline his fear young consumers are being caught up in
“hype” around digital assets and cryptocurrencies that “generates a powerful fear of missing out from some consumers”.
Mr Randell continued with a scathing assessment of the financial motivation for influencers and their disregard of the potential consequences for impressionable followers:
“There is no shortage of stories of people who have lost savings by being lured into the cryptobubble with delusions of quick riches, sometimes after listening to their favourite influencers, ready to betray their fans’ trust for a fee.”
As cryptocurrencies and other digital assets are currently unregulated, the FCA is limited in what it can do to limit advertising and their sale. However, the regulator does control activities like CFDs and options trading and last year banned trading platforms in the UK from offering more complex and highly leveraged derivatives based on cryptoasset price movements.
The regulator is also now the anti-money laundering watchdog in charge of companies in the digital assets space such as cryptocurrency and token exchanges. That new realm of jurisdiction saw the FCA ban the UK business of Binance, the world’s largest digital assets exchange, from carrying out any regulated activities in the country.
Randell has recently been outspoken in his concerns around cryptocurrencies and tokens and push for the regulator to be given greater powers to deal with the threat. At the recent Cambridge International Symposium on Economic Crime, he stated:
“It appears to me that there are two cases where regulators should have the powers to take action to reduce the potential harm to consumers from purely speculative tokens”.
“The first area is crypto asset promotions. The government has consulted on whether they should be regulated but has yet to publish its conclusions. A surprisingly large proportion of people buying these speculative tokens seem to think they may be regulated already. When you combine that fact with the relentless and often misleading advertising techniques of some crypto businesses, there is a real risk of consumer confusion.”
Randell also wants regulated firms with exposure to digital assets to be obliged to set aside capital to cover potential losses. The Basel Committee on Banking Supervision, the global financial services industry’s regulatory body, proposed the same in June.
“It’s essential that the boards of FCA authorised firms can show how they have addressed the risks that unregulated activities in relation to digital tokens can pose to those firms — to both their conduct, and their prudential soundness.”
In June, the FCA published research that estimated as many as 2.3 million British adults owned digital assets, mainly cryptocurrencies. That was an increase from 1.9 million a year earlier.
Randell is concerned those numbers could rise again sharply as a result of promotions by influencers, he says do little due diligence on what they are being paid to promote to their followers.
“Social media influencers are routinely paid by scammers to help them ‘pump and dump’ new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all.”
Randell also wants search engines and social media platforms to tighten up their rules for allowing financial advertisements. Google has recently done so though the FCA says it “will monitor the impact of its changes closely”.
He wants other tech platforms to also do more saying
“we now need other online platforms — Facebook, Microsoft, Twitter, TikTok — to do the right thing too.”
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