On Aug. 7, the Financial Conduct Authority (FCA) shared the findings of its review of several crypto firms to assess their adherence to new financial promotion rules. These regulations, introduced in October 2023, aim to safeguard consumers by providing them with a clearer understanding of the risks associated with crypto investments.
The FCA’s crackdown underscores the critical importance of robust compliance management systems for crypto firms. Effective regulatory compliance not only protects consumers but also safeguards the firm’s reputation and ensures its long-term sustainability. By implementing comprehensive compliance programs, firms can mitigate risks, avoid costly penalties, and foster trust with investors.
While the regulator acknowledges the challenges of adapting to new regulatory landscapes, the findings reveal significant compliance gaps among crypto firms.
Crypto Firms Regulatory Compliance with Financial Promotion Rules
The FCA’s review of crypto firms revealed a mixed picture of compliance with the new financial promotion rules. While some firms showed commendable efforts, others fell short of meeting the required standards. Key findings include:
Cooling-off period
Most firms implemented a 24-hour cooling-off period, but many failed to provide clear information about its purpose or offer consumers a clear option to proceed or leave the investment journey.
Personalised risk warnings
While all firms provided personalised risk warnings, some did not meet prominence requirements or failed to present clear options for consumers to proceed or leave the investment journey.
Client categorisation
Firms generally implemented processes for client categorisation, but some guided consumers towards specific categories or failed to verify information provided by consumers claiming certified sophisticated investor status.
Appropriateness assessments
Firms adopted various approaches to appropriateness assessments, with some falling short of assessing consumer knowledge effectively or providing clear guidance for consumers who failed assessments.
Record keeping
All firms recorded the required information, but many lacked clear plans for data utilisation to improve customer journeys.
Due diligence
Most firms conducted due diligence on cryptoassets, but some focused solely on security token assessments or neglected to consider broader factors like consumer protection and financial crime risks.
The FCA emphasises the importance of robust compliance to protect consumers and maintain market integrity. Firms are urged to review the provided guidance and improve their practices accordingly.
Overall, the FCA’s findings highlight the need for continued improvement in crypto firm compliance to ensure consumer protection and market confidence.
FCA’s Expectations and Next Steps
Firms are urged to carefully review this guidance to ensure they are meeting the required standards. The regulator has also emphasised the need for firms to develop strong internal controls and compliance systems to prevent future violations.
For those firms that fail to improve their compliance efforts, the FCA has warned of potential enforcement actions. Additionally, the regulator will consider a firm’s compliance record when assessing applications for authorisation under the upcoming financial services regulatory regime for cryptoassets.
FCA Compliance Management with COMPLY
The FCA’s recent review of crypto firms serves as a stark reminder of the critical importance of regulatory compliance in the industry. With increased scrutiny and potential penalties for non-compliance, it is imperative for crypto firms to prioritise building a robust compliance framework.
By investing in a comprehensive compliance management system and seeking expert guidance, firms can proactively identify and mitigate risks, protect consumers, and build trust within the market.
With COMPLY, you can proactively build an effective and sustainable compliance program. Our comprehensive suite of consulting services designed to help you:
- Conduct thorough risk assessments and tailor your program to your specific needs.
- Design and implement effective customer due diligence procedures, including beneficial ownership identification.
- Develop and test your compliance program to ensure its effectiveness.
Don’t wait for the FCA to come knocking. Is your firm doing all it can to comply with promotional regulations? Let’s find out.