The Government has proposed that the FCA should be given powers to regulate adverts and promotions in the cryptocurrency market, following a surge in cryptocurrency buying in the past year.

FCA research last month revealed that 2.6 million UK consumers have bought cryptoassets at some point, and the regulator suggested the figure had marked a 1.1 million increase since a survey on the same topic in 2019.

Today, the Treasury published a consultation paper indicating its plans to “expand the perimeter of the financial promotions regime” in order to enhance consumer protection.

The paper suggested the Government is continuing to consider its approach to the broader challenges of cryptoasset regulation, and the Treasury indicated this would ensure that cryptoasset promotions are held to the same high standards for “fairness, clarity and accuracy” that apply to the “traditional” financial services industry.

AJ Bell personal finance analyst, Laura Suter, commented: “The FCA has previously said that its hands were tied in some of its work on cryptocurrencies as it didn’t have the power to regulate much of the market – but this move will change that.

“Advertising is incredibly powerful in the cryptocurrency market. More than a third of people who bought cryptocurrencies did so because an advert had encouraged them. But those people are also less likely to understand the risks involved and more likely to regret buying cryptocurrencies.

“Social media has played a big part in the boom in cryptocurrency buying, as it’s so easy for posts to be seen by thousands of people in a matter of minutes. But the claims made in the posts are often fantasy and there is very little oversight of what people are claiming. A crackdown on cryptocurrency advertising, particularly on social media, would prevent more vulnerable people from buying and protect them from losses.”

Cryptoassets pose a range of substantial risks to consumers, and the Treasury highlighted several areas of risk including the risk of consumers purchasing unsuitable products without having access to adequate information, consumers being exposed to fraudulent activity, as well as risks arising from the immaturity or failings of market infrastructures and services.

The proposals stated that the cryptoasset market is still in a relatively early phase of development, and that as a result, many of its participants are “unsophisticated” and operational controls are “immature”, creating openings for market abuse and manipulation.

The Treasury’s paper also highlighted that cryptoassets can be used to facilitate money laundering, terrorist finance and other illicit activity.

“If the Government proposals are passed, the FCA has a massive task on its hands of cracking down on the Wild West of the crypto-market, which is populated by scammers and fraudsters as well as legitimate businesses,” Suter added.

“With so much of the advertising and false claims made online, on social media and directly to retail investors, weeding out the rogues in the market is job of gargantuan proportions.”

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