UK Crypto Exchanges Crack Down on Referral Schemes
UK financial authorities have issued a directive to crypto exchanges, barring them from offering bonuses to users promoting their platforms. This encompasses affiliate programs and referral links as well.
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The familiar “Refer a Friend” bonuses and added benefits for resharing crypto-related content are now things of the past.
What's more, the latest regulations stipulate that trading platforms must offer investors a 24-hour reflection period before they invest in cryptocurrencies. This provision ensures that investors have ample time to reconsider, especially if they are under the influence of the pervasive ‘Fear of Missing Out' or FOMO. During this grace period, companies are expected to conduct thorough KYC/AML checks and assess the appropriateness of selling a particular asset to an investor.
An assessment might deem an individual “unfit” if they cannot provide a clear source of their funds or if their reported annual net income falls below £100,000.
These newly imposed restrictions are part of a broader effort by regulators to tighten the reins on cryptocurrency advertising.
Spearheading this initiative is the UK's Financial Conduct Authority (FCA). Sheldon Mills, the FCA's Executive Director of Consumer and Competition, remarked:
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.
On June 23rd, the FCA unveiled an official document, “Financial promotion rules for cryptoassets,” emphasizing that due to the existing lax regulatory environment, digital assets inherently pose high investment risks. Thus, British individuals who venture into cryptocurrencies should not anticipate assistance from the Financial Ombudsman Service, nor any state-backed financial redress, should they incur losses.
Furthermore, the promotion of a digital asset will be contingent upon its risk classification. The FCA has outlined three distinct risk categories for such projects. For speculative and illiquid securities, such as NFTs as classified by the FCA, all retail marketing activities are prohibited.
Advertising restrictions are risk-based. Source: FCA
The regulator has indicated that the proposed categorization was deliberated upon with representatives from the crypto community. Interestingly, 37% of the participants concurred with the decision, while a significant 45% were in distinct disagreement. Nevertheless, these figures didn't sway the final decision of the legislative body.
This law will officially come into play on October 8, 2023. By this deadline, all digital platforms are expected to have integrated these set restrictions within their service codes. Additionally, they need to brace their clientele for these impending changes by revising their user terms and conditions.
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