Regulating cryptoasset financial promotions in the UK

Analysing the current landscape and upcoming changes

Elizabeth Caunt

Cryptoassets are highly speculative assets, whose value is extremely volatile. Unexpected changes in market sentiment can cause sharp and sudden moves in price, making cryptoassets a high-risk investment. ¹ In addition, several prominent crypto firms failed in the second quarter of 2022, adding to the unpredictable landscape in which cryptocurrencies operate. Despite this unpredictable behaviour, retail investment in cryptoassets has undergone an increase of more than 100 per cent over the past one to two years with 5-10 per cent of UK adults now owning cryptoassets. ² The retail investment landscape has undergone significant changes that have made crypto investments extremely accessible, with inexperienced investors who may lack sophisticated knowledge of financial markets opting to invest in cryptocurrencies. Cryptoassets and markets are currently unregulated, exposing retail consumers to large losses, fraudulent behaviour and scams. The Bank for International Settlements (BIS) estimated that over three-quarters of retail investors lost their money on crypto investments between 2015 and 2022. ³ This problem has been intensified by the epidemic of misleading, inaccurate and fraudulent advertising and financial promotions of crypto-related products to retail investors. In 2019, the Cryptoasset Taskforce (consisting of the Treasury, the FCA and the Bank of England) identified consumer protection and market integrity as two areas of risk requiring priority for authority action, making specific reference to information asymmetry concerns, consumers purchasing unsuitable products with inadequate information and fraudulent activity. ⁴