From 8th October 2023 UK sellers of crypto products will be required to offer a 24 hour cooling off period between an agreement to purchase and the trade going through. Campaigns must be seen as fair, clear and not misleading. Promotions such as ‘refer a friend’ will be banned. Any such actions will be treated as a ‘regulated activity’ and a breach is seen as a criminal offence and punishable by up to two years imprisonment, an unlimited fine, or both. Sales of crypto products or services will need to contain a warning along the lines of:
‘Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.’
The UK industry body CryptoUK is in favour of moves to regulate the industry but disagrees with the recent Treasury Select Committee statement that crypto asset dealings have more in common with gambling than financial trading.
This ruling will be enforced by the Financial Conduct Authority. The present (June 2023) guidelines are not the final version but they do define what crypto assets might be covered:
‘Qualifying cryptoassets’ are any cryptographically secured digital representation of value or contractual rights that is transferable and fungible, but do not include cryptoassets which meet the definition of electronic money or an existing controlled investment.
This is a general summary and there are exceptions and clarifications but cryptoassets will specifically include FIAT based stablecoins although these might otherwise be seen as electronic money. The specific use of the term fungible means that NFTs by definition are not included. Tokens that are not fungible would be covered. This would exclude those tradeable benefits often used to fund or promote enterprises such as fan tokens.
The new rules will require a trader to be in a position to hold and refund a purchase price within 24 hours. The simplest solution might be to use a holding account; benefitting from a small accumulation of interest while the funds are held. These funds could even be used for trading within the grace period but with worrying consequences should such trading make a loss. If the price of an offering is volatile the cost on day 1 would not be the same as on day 2 when the investment might be refunded. This sort of risk is the bread and butter of the established trading businesses. Any concern just starting up in the crypto sales business would need to consider how much risk they can handle together with what they can continue to offer to promote sales. Although the promotions that might be offered will now be restricted the customer will have the added confidence of the cooling off period for the return of their investment. Buyers should take note that this is UK law so any sales taking place where this or similar legislation does not apply will not benefit from the same protection.