FCA New Regulations Bans ‘Refer-A-Friend’ to Protect Crypto Investors in the UK
UK’s Financial Conduct Authority (FCA), the Agency saddled with the power to regulate financial services industry in the UK has concluded plans to ban the very popular ‘refer-a-friend’ marketing tactics applied by Cryptocurrency companies to lure consumers into investing in cryptocurrency in the country. This new regulation will take effect from October 8, 2023 and is part of the strategy towards reducing the losses suffered by Crypto Investors in the UK.
This announcement was made on June 8, 2023 by the FCA.
The refer-a-friend strategy adopted by most crypto companies is designed to reward registered users with bonuses for every new user they successfully refer to them. Therefore, the new regulations will completely put a stop to these types of promotion, and any form of advertisements by crypto companies in the UK must be fair, clear and not misleading in any form.
Under the new regulations, crypto companies must verify that the consumer possesses the necessary knowledge and experience to engage in crytpo investments.
It also mandates crypto companies to warn their potential customers of the high risks of investing in crypto while first-time investors should be introduced to what it called a “cooling-off period”. During this period, the companies are not expected to market their product or service to these newbies.
These rules are designed to offer consumers the right warnings said Sheldon Mills, Head of Consumers and Competition at the FCA.
“The crypto industry needs to prepare now for this significant change, We are working on additional guidance to help them meet our expectations” – Mills
Some crypto players are already kicking against the policy arguing that the new policy will end up discouraging new crypto investors.
Speaking on the issue, the Director of Operations at Industry Group Crypto UK, Su Carpenter said, “There is a risk that this solution will both unfairly concentrate market power for those firms which are already authorised and potentially encourage unauthorised firms to operate from outside of the UK.”
Su added that the rules might put businesses established within the UK at a competitive disadvantage.
Challenges Faced by Crypto Companies
This new regulation is coming a few days after the crackdown on Binance and Coinbase by the U.S. Security and Exchange Commission (SEC). The SEC filed a lawsuit against the crypto companies for allegedly offering unregistered securities.
In Nigeria, the country’s SEC has directed Binance to immediately stop soliciting Nigerian investors in any form whatsoever. The regulator claims Binance is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal. The Commission also warned members of the investing public to deal with the entity at their own risk.