A policy statement published by the Financial Conduct Authority (FCA) on August 1 aims to clarify the rules and regulations surrounding the promotion of high-risk assets.
Under the measures, the FCA plans on:
- Strengthening risk warnings
- Banning inducements to invest (such as "refer a friend" bonuses and new-joiner promotions)
- Introducing positive frictions
- Improving client categorisation and
- Introducing stronger appropriateness tests
While crypto assets feature prominently in the policy statement, the FCA conceded that “crypto asset promotions are currently outside our remit”.
However, the FCA made it clear that it intends to bring crypto assets under its purview, stating: “We will publish our final rules for crypto asset promotions once the relevant legislation to bring qualifying crypto assets within the financial promotions regime has been made.”
The policy statement rationalised high-risk investments into three categories:
- Readily Realisable Securities (RRS): Listed or exchange-traded securities on the London Stock Exchange and other regulated exchanged
- Restricted Mass Market Investments (RMMI): Shares or bonds in a company not listed on an exchange
- Non-Mass Market Investments (NMMI): Pooled investments in unauthorised funds
Crypto assets are proposed to be categorised as an RMMI, which if approved, would place restrictions on how they are mass marketed to retail investors.
What’s high risk?
Going by the FCA’s statements, the risk profile of RMMIs is not set in stone: “We agree that not all investments subject to the RMMI rules have the same risk profile. For example, some have greater levels of liquidity risk while others have greater levels of complexity or information asymmetry.”
However, the proposals suggest a uniform 10% exposure limit for RMMIs in a retail investor’s portfolio.
The FCA said: “We still consider crypto assets, when used as a speculative investment, to be high‑risk. Recent events, including sharp falls in the price of crypto assets, further highlights the riskiness of these products”.
Although the Treasury has confirmed that it intends to bring certain crypto assets under the scope of the financial promotion regime, implementation of that decision remains pending.