Free Promotional NFTs, Crypto Airdrops Would Be Banned Under New UK Rules, Officials Say
Giving away free non-fungible tokens (NFTs) or cryptocurrencies through airdrops to promote investment in digital assets will be banned after the UK Financial Conduct Authority’s (FCA) new rules come into effect, an official at the regulator told CoinDesk.
The UK’s strict rules on crypto-financial promotions will come into effect on October 8, according to a report the FCA published on Thursday. Under these rules, crypto will be categorized as a “limited mass market investment” and will require crypto ads to have clear risk warnings. Also, incentives for the general public to invest in cryptocurrencies will be prohibited.
Crypto companies and celebrities have previously presented customers and fans with free NFTs that are tied to a project’s blockchain or represent real-world values. Projects have also released crypto airdrops as part of broader marketing efforts.
These free NFTs and airdrops, when used to promote investment in crypto products, can lead to consumers buying crypto that they realize “may be problematic later on,” said Matthew Long, director of payments and digital assets at the FCA.
Crypto airdrops and NFTs per se will not be banned – only campaigns involving airdrops, said Long, who was appointed last year to lead the FCA’s crypto work.
Read more: UK FCA proposes ban on crypto-incentives in tough new marketing rules
When the FCA consulted on the marketing rules last year, respondents largely disagreed with proposals such as banning incentives, treating crypto as a mass-market investment and blocking new investors from receiving non-real-time promotional offers (DOFPs), the FCA’s policy document from Thursday said.
Generally, only entities authorized by the FCA can approve their own ads. As there is currently no regime in place that allows the FCA to fully authorize crypto firms, the government has made room for a time-limited exemption that will allow crypto firms registered with the FCA to comply with its anti-money laundering requirements in order to authorize their own. ads starting in October.
Eventually, however, only FCA-authorized entities will be able to approve ads. Some in the industry fear that the requirement may be too restrictive.
“The requirement that all approvers of financial campaigns have an understanding of cryptoassets and are authorized to act as approvers also has the potential to impose an overly restrictive regime, based on the incredibly small number of organizations that would meet these criteria for approver status,” said Su Carpenter, director of operations at lobby group CryptoUK in a statement.
The FCA plans to implement the above measures regardless of the industry’s downturn.
Long said the FCA listened to respondents who contributed to the consultation last year and chose rules it believed were the “safest possible regulatory framework.”
Several lawyers CoinDesk spoke with welcomed the regime as something that would ensure consumers are protected.
“The stability and oversight of the latest FCA changes will potentially increase consumer and market confidence in the digital asset sphere,” Will Charlesworth, crypto-assets partner at UK-based Keystone Law said in a statement.
Since January 2020, the FCA has received 318 crypto applications for registration, and 41 crypto firms have managed to complete the registration process. The regulator has faced some criticism for the registration regime, with some companies complaining that it is too lengthy.
“They’re high standards, and they’re high standards for a reason, because we want custody to be safe and we don’t want money laundering,” Long said, speaking of the registration regime. He added that the FCA has dialogues with crypto companies on a weekly basis.
Read more: British crypto firms and regulator blame each other for industry exodus
The UK recently concluded a consultation on new rules for the crypto sector and proposed a new authorization regime for all crypto firms – including those already registered with the FCA – which will be run by the regulator.
Long said the FCA’s focus is on six key areas, which include dealing with fraud and cross-border risks as outlined in a recently published report by international securities regulator IOSCO that addresses concerns about investor protection and market integrity.
Read more: British crypto firms to get broad laws, may need new authorization
