The Financial Conduct Authority (FCA), UK’s financial regulator, has dropped another round of guidance for crypto companies advertising their services.
After laying down the law on crypto promotions back in October 2023, the FCA says it has been keeping a close eye on how companies are following the rules.
They’ve been digging into how companies are sticking to these requirements. The FCA picked out certain companies, asked for info, and even paid some visits to see what’s up.
Their rules demand that companies record specific customer journey data. And guess what? All companies are on it, but some are going the extra mile.
Recording customer journey data
So, companies need to log details about how customers interact with their platforms. Some are taking this seriously, capturing extra data during the onboarding process.
This helps them figure out how customers are engaging, comparing things like purchase volumes and asset types. The top companies have a game plan for using this data.
For example, one company noticed some misleading wording during onboarding and fixed it. But not everyone is on the ball. Many companies don’t know how to use this data to make things better for their customers.
Good practice examples include capturing real-time data of frictions during onboarding and using this to improve the journey.
These companies also incorporate data analysis into their reports at various levels, including the board, to keep things in check and make improvements.
On the other side, some companies are missing the mark by not having a clear plan for the recorded data, struggling to identify or produce information quickly, and failing to verify the accuracy of the data.
Due diligence on cryptocurrencies
Due diligence is a big deal in the financial promotions regime. To help companies get it right, the FCA set out guidance in FG23/3 on what to do before promoting a cryptocurrency or service.
This includes checking the cryptocurrency itself and the claims made in the promotion. Most companies have some process for due diligence before they start promoting cryptocurrencies.
The best ones dig deep, following the FCA’s guidance and then some. They even develop their own risk taxonomies for cryptocurrencies to spot major risks or concerns.
But the FCA says some companies are too focused on whether the cryptocurrency counts as a security in other places rather than meeting UK regulations.
The top companies consider a wider range of factors, like consumer protection, financial crime, and operational risks. A few are thorough, having specialist teams review smart contract code and network stability.
One company thought they didn’t need to do due diligence on cryptocurrencies. Another skipped considering environmental, social, or governance (ESG) factors.
The best companies know exactly when to reject a cryptocurrency that doesn’t meet their standards. For example, one promotes less than 10% of the cryptocurrencies they review because they have a strict process.
Most companies rely on public info like white papers or news services. The best ones look at a wide range of sources, mixing on-chain and off-chain info with data from third-party specialists. But some companies don’t verify this info well and just take it at face value.
Due diligence shouldn’t be a ‘set it and forget it’ process, says the FCA. Companies need to think about how they’ll keep checking on the cryptocurrencies they promote.
They should have systems to monitor market events that could affect the fairness of promotions and the risk profile of the cryptocurrency.
