FCA issues tougher ad rules for risky assets, pledges to target digital assets next

The U.K.’s financial watchdog is clamping down on the marketing of high-risk investments to consumers, but it has yet to target digital assets. In its new guidelines, it prohibited incentives to invest such as “refer a friend for a bonus” and demanded that such ads come with more prominent risk warnings.

The new rules are part of the Financial Conduct Authority’s (FCA) Consumer Investment Strategy, which seeks to reduce the number of people investing in high-risk products that don’t reflect their risk appetite. 

We’re strengthening our rules for firms communicating and approving financial promotions for high risk investments https://t.co/rGwpTSysKK

— Financial Conduct Authority (@TheFCA) August 1, 2022

This is after its research found that a significant number of people who invest in such high-risk products don’t think they can lose their money and invest without fully comprehending the risks involved. In the year ending July, the FCA cracked down on over 4,200 ads that were not up to its standard, it claimed.

Under the new rules, which will be rolled out over the next six months, firms issuing these kinds of ads must prove they have the appropriate expertise and ensure that the consumers they target are well matched with the risky investments.

The advertisers must also include a clear and prominent risk warning and can no longer use some of the most common incentives to lure their target clients, such as the “refer a friend to get a bonus” incentive.

The regulator has spared digital asset ads, at least for now. Earlier this year, the U.K. government pledged to crack down on digital currency ads and bring them under the purview of the FCA. However, this has yet to be confirmed officially in the country’s legislation. Once this happens, digital asset ads must adhere to most of the new stipulations.

“These rules are likely to follow the same approach as those for other high-risk investments. Crypto remains high risk so people need to be prepared to lose all their money if they choose to invest in cryptoassets,” the FCA noted.

“Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” Sarah Pritchard, the executive director of markets at the watchdog, warned. 

And while it has yet to issue new rules on digital asset ads, the regulator has cracked down on several firms it believed were deliberately misleading investors or omitted material information. 

However, it has been the Advertising Standards Authority (ASA) that has taken the lead in cracking down on digital asset ads. The ASA has gone after individual entities such as Arsenal Football Club as well as platforms such as TikTok, which had to ban digital currency ads.

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