Unregistered crypto firms looking to serve U.K. clients have to rely on other companies to approve local communications.
These ad approvers are facing heavy regulatory scrutiny and will soon have to apply for new permissions.
The U.K.’s tough new rules for advertising crypto have firms rushing – and even struggling – to comply. More rules planned for ad approvers augur further trouble for companies looking to draw local customers.
Local regulators require firms to be admitted to the country’s crypto register to be able to approve their own communications or – failing that – have their ads approved by authorized firms.
It sounds pretty straightforward, but in reality, firms with the right powers aren’t easy to come by. Binance exchange, for instance, teamed up with a U.K. firm called Rebuildingsociety.com to have its promos approved, but the country’s financial watchdog slapped the local firm with new restrictions in October limiting its ability to approve crypto-related communications. As a result, Binance announced it won’t be taking on any new U.K. clients until it finds an authorized ad approver.
Now, as much as 10 crypto businesses including Coinbase and OKX are relying on exchange platform Archax to approve their ads in the U.K. But even Archax’s future as a crypto promotions approver is not guaranteed.
Archax can only temporarily approve crypto ads for other companies while it applies for the Financial Conduct Authority’s (FCA) permission to continue approving. It can apply for this authorization within three months starting Nov. 6. Should the regulator reject Archax's application, companies that are relying on it for ad approvals will be forced to find alternative means of complying.
“Everyone is in the same state as us. We're all applying and we're all allowed to provide the service while we apply,” said Simon Barnby, Archax’s chief marketing officer, in an interview with CoinDesk. “If at the end of it, someone passes then that's all well and good and if someone doesn't, then they would have to stop providing the service.”
Archax was one of the first companies to get on the FCA crypto register in 2020 and it received authorization from the regulator as an exchange, broker and custodian for tokenized and traditional assets.
Although the FCA has previously said authorized entities can approve crypto ads, this didn’t prove enough in the case of Binance’s ad approver. Rebuildingsociety.com was told in October that it could not approve crypto ads despite the company being an FCA-authorized entity. The FCA said at the time that the decision was made to ensure consumer protection.
The confusion over which entities have the right powers to help crypto firms communicate to U.K. clients is only part of the struggle for unregulated platforms that have historically – and quite liberally – accessed customers across jurisdictions. The FCA is monitoring compliance carefully, and has added around 221 crypto platforms to its warnings list since the ad rules took effect on Oct. 8.
The regulator is also putting pressure on ad approvers. In a recent notice, it told approvers to expect enforcement action should they fail to notice “common issues” like illegible or insufficient risk warnings.
Firms approving crypto ads for other companies must apply for new permissions with the FCA. To get the greenlight, firms have to prove they have the appropriate expertise to approve promotions for crypto companies and demonstrate they have the resources to do so, the regulator said.
“It's a resource-intensive area, but we have been growing the team appropriately to match client demand,” Nick Donovan, chief revenue officer at Archax said, adding that the firm is preparing its application.
Firms that have been approving other companies’ communications can continue doing so after they apply for the new permissions, and only keep going if they get a positive decision from the FCA.
“If we refuse a firm's application or the permission granted does not cover approvals for certain types of product for which they have applied for permission, the firm will need to cease the relevant S21 approval activity once we have determined their application,” the FCA said in September.
Edited by Sandali Handagama.