The United Kingdom is taking a significant step towards regulating cryptocurrency by banning free promotional NFT and crypto airdrops that encourage investment. The Financial Conduct Authority (FCA) has announced that the new rules are set to come into effect on October 8, 2023.
The FCA’s move targets promotional airdrops of non-fungible tokens (NFTs) and cryptocurrencies, which have increasingly become a common marketing strategy for crypto projects and celebrities alike. These promotional events typically involve distributing free NFTs tied to a project’s blockchain or representing real-world assets, and crypto airdrops as part of wider marketing initiatives. The concern is that these free assets, when used to promote investment in crypto products, could lead consumers into making investments that may prove problematic later on.
The new regulations will categorize cryptocurrencies as a “restricted mass market investment,” a move that will necessitate clear warnings about risks in crypto advertisements. In addition, the rules will prohibit incentives for the general public to invest in cryptocurrencies, specifically aiming at marketing strategies that use free airdrops or NFTs to promote investments.
It’s important to note that the ban will not apply to all crypto airdrops and NFTs, but specifically those used as incentives alongside promotions that encourage people to invest. Crypto airdrops and NFTs themselves will still be allowed, providing they are not tied to investment promotions.
The FCA’s decision has been met with mixed reactions. The regulatory body conducted a consultation on its marketing rules last year, and many respondents disagreed with proposals such as banning incentives, treating cryptocurrencies as a mass market investment, and blocking new investors from receiving certain promotional offers.
Despite the pushback, the FCA has maintained its stance. Matthew Long, director of payments and digital assets at the FCA, reiterated that the regulatory body aims to create the “safest possible set of rules” for consumers and the market1. This goal seems to be shared by some within the industry. Will Charlesworth, a crypto assets partner at Keystone Law, suggested that the new changes “will potentially enhance consumer and market confidence in the digital assets sphere”.
The rules about advertising are also set to change. Under the new regulations, only organizations authorized by the FCA will be able to approve their own ads. Currently, there is no system in place that allows the FCA to fully authorize crypto firms, so the government has created a temporary exemption. This will enable crypto firms registered with the FCA to meet its anti-money laundering requirements while abiding by the new advertising rules12.
This move by the UK indicates a trend among European nations towards clearer regulations for the crypto industry. The United States, one of the few major economies yet to announce its stance, is expected to follow suit soon. As these countries implement their own regulations, it will be interesting to see how the global landscape for crypto and blockchain technology evolves.
In conclusion, while the FCA’s proposed regulations have faced some resistance, they mark a significant step in the ongoing effort to regulate the crypto industry in the UK. The aim is to protect consumers and the wider market from potential harm, while also fostering growth in the burgeoning digital assets sector. The next few months leading up to the introduction of these regulations will undoubtedly be closely watched by industry players, regulators, and consumers alike.