Not everyone who trades in cryptosassets are fully aware of the risks involved, but new proposed regulations may change that.
The UK government has proposed two new pieces of regulations which would make the regulations about how cryptoassets are promoted stricter.
Previously, it would have been enough for an unauthorised firm who wanted to promote a particular financial product to get approval from an authorised firm.
However, with the ubiquity of new cryptoassets hitting the market, regulators find that there is an increasing risk of promotions being misleading and not highlighting the dangers included.
To fix that, the UK government has proposed that the authorised firms would have to ask the Financial Conduct Authority (FCA) for approval to whether or not the authorised firm can give its thumbs up to the unauthorised firm who wishes to sell cryptoassets.
The idea is that this would give the FCA more oversight of the market and be better placed to ensure the promotions are not misleading.
“It’s important that people can understand the financial products they see promoted,” said John Glen, economic secretary to the Treasury & City minister. “If adverts by unauthorised firms are misleading, or don’t fully outline the risks, then people can end up losing money. That’s why we want to put more protections in place around such financial promotions, including the promotion of cryptoassets, while continuing to ensure people have access to a wide range of products on the market.”
Bradley Rice, senior associate at law firm Ashurst, welcomed the new proposals.
“The Treasury’s two proposals strike the right balance between consumer protection and common sense,” he said. “The pre-vetting of authorised firms before they can approve unauthorised firms’ financial promotions could stamp out some of the poor practice in this area, but firms who legitimately rely on this option – such as in some corporate transactions and the sale of investment funds – will hope the ‘gateway’ is a one-time-only, pre-vetting process rather than another administrative step.”
Rice added that the new proposals could also spell the end for illegal initial coin offerings (ICO).
“The cryptoasset proposals are not surprising and deal another nail in to the coffin of illegitimate ICOs, which have lost their shine since the heydays of 2018. These proposals should not cause many concerns to the growing number of incumbent financial services firms moving into this sector who are already familiar with the FCA’s financial promotion rules. This is not the end of the road for cryptoasset regulation, however.”
The UK is not the only one nation clamping down on cryptoassets.
Earlier this summer, the US Office of the Comptroller of the Currency (OCC) asked industry stakeholders for some feedback about how it should deal with digital banking, RegTech and cryptoassets in the future.
That consultation is open until August 1 2020.
In June 2020, RegTech Analyst reported that blockchain business BitClave had agreed to pay back the proceeds of its unregistered ICO and settling charges brought on by the Securities and Exchange Commission (SEC).
BitClave agreed to settle the charges by returning proceeds from the offering and paying additional monetary relief to be distributed to investors through a fair fund
In the end, BitClave ended paying back $25.5m to settle the case.
Copyright © 2018 RegTech Analyst
