Cryptocurrency advertising needs to be regulated – but is the FCA up to the task?

I made stacks of cash from crypto by following my investment guru. If you click through to his website, you could, too!”

That was what the tweet said, more or less. Needless to say, I didn’t click through. I deleted the text that said much the same thing. I didn’t bother to open the email. Trouble is, there are plenty who do.

The Financial Conduct Authority (FCA) has just announced a consultation that aims to reduce their numbers by tightening up the rules around promoting high-risk investments, which will bring unregulated cryptocurrency schemes under its scope.

It comes amid an explosion in crypto ads, which have become almost as ubiquitous as Ant and Dec, just a lot less wholesome.

They’re everywhere you look. They’ve eclipsed even the ads for internet casinos. I’m not entirely sure which you would classify as the riskier: crypto or card games?

Okay, I see there might be a problem here, said Rishi Sunak, probably grateful to be talking about anything other than the cost-of-living crisis, especially now that inflation has jumped to a 3-year high of 5.4 per cent.

So while these new crypto opportunities are “exciting” – yes, the chancellor actually tweeted that – to the little people, we’re going to ensure “consumers are protected, while also supporting innovation of the crypto-asset market”. Whatever that means.

It’s the cost-of-living crisis that has fuelled people’s ardour for get-rich-quick gambling. When it comes to innovation in the crypto-asset market, file under “Be afraid. Be very afraid.”

A day later, we got the FCA’s consultation. It will require operators to ask tougher questions of prospective investors, among other things. The Treasury is planning eventually to bring crypto schemes fully under the FCA’s remit, at which time the watchdog will categorise “qualifying” crypto-assets as “restricted mass-market investments”. This means consumers will only be able to respond to crypto-asset ads if they are classed as restricted, high-net-worth or sophisticated investors. At least in theory.

Have you spotted the problems?

For a start, this will only catch the legitimate part of an industry in which the lines between very high risk, more or less valid, and out-and-out scam can be quite difficult to discern.

Then there’s the question of speed. The consultation closes on 23 March. The new rules won’t be in force until some time this summer. There’s an awful lot that could go wrong in the interim, and an awful lot of people who could get burned, given that this is a market that is moving at the speed of the asteroid that recently passed close enough to the planet to excite some people.

There are already some who are feeling the shockwave from this. Ask anyone who responded to an ad and jumped into, say, a Bitcoin scheme, from about the start of November, how they feel. I’m not sure they’d use the word “exciting” to describe their new assets.

Presumably the Treasury plan is to blame the FCA for not getting its skates on if the market throws a real wobbly, which is a bit rich given that the FCA has to go to the Treasury first before it can act.

With an asset class like this one, it’s effectively chasing a BMW with an electric bike, all the while knowing that it’ll get clapped in irons if the beamer crosses the central reservation and proceeds to hit an oncoming lorry at ramming speed.

A regulator’s lot is surely not a happy one.