At present, the UK regulates some types of crypto assets, but not all. In general, the structure and substantive characteristics of a virtual currency will determine whether or not it falls within the UK regulatory perimeter.
Social media star Kim Kardashian has faced scrutiny from the UK financial industry regulator because of crypto ad. According to Charles Randell, head of Britain’s Financial Conduct Authority (FCA), the model posted a stories on Instagram advertising the virtual token Ethereum Max. She was “paid to ask her 250 million Instagram followers to speculate on crypto tokens by joining the Ethereum Max Community.”
Randell has also said that Kim’s post “may have been the financial promotion with the single biggest audience reach in history.”
The reason the UK financial watchdog did not like the advertisement is that very often crypto ads on social media turn out to be scams. Regulators are concerned about massive volatility and fraud, therefore, they are considering having a bigger role in monitoring the industry.
Charles Randell stated:
“Any effective system of regulation would require a business seeking registration or authorisation with the FCA to bring itself firmly within our reach, with people and resources that we could access in order to supervise and enforce our requirements. We are not going to award FCA registration or authorisation to businesses which won’t explain basic issues, such as who is responsible for key functions or how they are organised.”
Getting back to Kim Kardashian and her ad, Randell noted that she promoted the crypto in line with Instagram rules. But there was no need to reveal that Ethereum Max was a speculative digital token created a month before by unknown developers.
Kim Kardashian shared a post featuring Ethereum Max with her more than 200 million followers back in June. It is not clear how much the celebrity got for the edvertisement. However, a 2019 court filing disclosed that she can earn between $300,000 and $500,000 for a single Instagram post.
Regulatory Scrutiny on Cryptos
According to Charles Randell, about 2.3 million UK citizens currently hold cryptocurrency. Besides, 14% of them also use credit to purchase them. As a result, there is a high risk of exposure to loss.
Further, Randell warned about the risks of holding “speculative tokens”. FCA does not regulate them, and there is no coverage by any compensation scheme. He also suggested that the FCA believed social media platforms like Instagram, Facebook, Twitter, and TikTok should adhere to legislation that stops firms unauthorized by the regulator from promoting advertisements for financial products.
At present, the UK regulates some types of crypto assets, but not all. In general, the structure and substantive characteristics of a virtual currency will determine whether or not it falls within the UK regulatory perimeter. If so, then a particular regulatory framework will apply.
The FCA has previously classified cryptoassets into three categories. E-money tokens fall subject to regulation under the Electronic Money Regulations. Security tokens are cryptoassets with the characteristics of specified and effectively regulated investments in digital form. Finally, unregulated tokens, namely utility tokens used to access a service or exchange tokens, such as Bitcoin (BTC) can be used for payment.