UK watchdog considers crypto memes as financial promotions.

UK watchdog considers crypto memes as financial promotions.

The Impact of UK Financial Regulator’s Proposed Guidance on Crypto Memes and Finfluencers

The crypto industry has been booming in recent years, with an increasing number of people getting involved in cryptocurrency investments. However, with this growth comes the need for regulations to protect investors from potential risks and scams. In line with this, the Financial Conduct Authority (FCA) in the United Kingdom has proposed new guidance that could have significant implications for crypto firms and influencers.

The FCA’s proposed guidance on social media financial promotions specifically targets promotional memes and financial influencers, commonly known as “finfluencers.” The regulator believes that many people in the UK are being exposed to financial promotions from unsuitable sources, including memes that they may not realize are subject to promotional rules. In order to address this issue, the FCA plans to ramp up its efforts to stamp out illegal financial promotions, particularly those found on social media.

Promotional memes have become increasingly prevalent in the crypto sector. These memes, often shared on platforms like Twitter and Reddit, can be humorous and entertaining but may also contain misleading or inaccurate information. The FCA considers any type of communication, including memes, as a potential financial promotion. To illustrate this, the FCA provided an example of a crypto investing-related meme that it considers a financial promotion.

Example of a crypto investing-related meme the FCA considers a financial promotion. Source: FCA

One of the key aspects of the proposed guidance is the FCA’s classification of crypto as a high-risk investment. While it can be advertised to retail investors, there are specific requirements that need to be met, such as including risk warnings and a ban on investment incentives. The FCA has observed that a significant number of financial promotions from authorized firms on websites or social media have been amended or withdrawn following its intervention.

The FCA’s proposed guidance is aimed at updating its existing guidance from 2015 and providing clarity on how marketers should implement its regulations around promotions. The regulator wants to ensure that crypto firms and influencers are aware of their obligations and take appropriate measures to comply with the rules.

One particular group that the FCA has highlighted in its proposed guidance is finfluencers. These are finance-oriented influencers who promote financial products to their followers, often targeting a younger audience. The FCA has expressed concerns about the lack of knowledge that some of these influencers have regarding the products they promote. It warns that promoting financial products without proper understanding could be an offense punishable by up to two years in jail, an unlimited fine, or both. Importantly, this law applies even to promotions from outside the UK that could have an effect in the country.

The FCA’s concerns about the influence of finfluencers are not unfounded. A report cited by the regulator revealed that over 60% of 18 to 29-year-olds follow social media influencers, with three-quarters of them trusting their advice. Furthermore, a survey conducted by the FCA in 2021 found that 58% of respondents under 40 years old cited hype from social media and the news as reasons for their investment in cryptocurrencies, which the regulator considers a high-risk product.

The proposed guidance from the FCA is currently open for public comments until September 11. This gives stakeholders and industry participants an opportunity to provide feedback and raise any concerns they may have regarding the potential impact of the guidance.

In conclusion, the FCA’s proposed guidance on social media financial promotions, specifically targeting crypto memes and finfluencers, is a significant development in the regulation of the crypto industry in the UK. The regulator aims to ensure that investors are protected from misleading or fraudulent promotions and that crypto firms and influencers understand their responsibilities and comply with the rules. As the crypto industry continues to evolve, it is crucial for regulators to adapt and provide clear guidelines to promote a safe and transparent ecosystem for investors.