The UK Financial Conduct Authority (FCA) has warned cryptoasset firms marketing to UK consumers (including from overseas) to start preparing now to comply with the UK financial promotions regime, which is soon to be expanded to cover most unregulated cryptoassets. HM Treasury (HMT) has also published a policy statement on its approach to regulating cryptoasset financial promotions, in which it has announced that cryptoasset firms which are registered under the Money Laundering Regulations 2017 will be able to communicate their own financial promotions under a planned new exemption. Here, we summarise what firms need to know about the recent announcements.
Expansion of the Financial Promotions Regime – Where Are We Now?
In January 2022, HMT announced its intention to bring most unregulated cryptoassets within the scope of the UK’s financial promotions regime. In practice, this means that the promotion of such cryptoassets to UK consumers, including by overseas firms, will be regulated by the FCA. At the same time, the FCA consulted on the rules that will apply to promotions of such cryptoassets.
At present, the expanded regime is not yet in force. As explained in our previous note summarising the proposed new rules, HMT needs to bring forward legislation in order to expand the regime. That has not yet happened. The FCA also needs to announce its final rules for the promotion of relevant cryptoassets and has stated that it will do so once the relevant legislation is made.
New Developments in February 2023 – Statements from the FCA and HMT
Whilst we still do not have a fixed timetable for implementation (see below), we now appear to be significantly closer to the implementation of the expanded financial promotions regime. In February 2023, HMT issued a policy statement setting out its approach to cryptoasset financial promotions regulation (the “Policy Statement”), and the FCA issued a related statement (the “FCA Statement”). Our key takeaways from those statements are set out below.
- FCA has warned firms to begin preparing now
In the FCA Statement, the FCA is clearly warning firms to begin preparing now to ensure they are compliant on day one of the regime. The FCA Statement encourages firms to “take all necessary advice as part of their preparations”. It seems unlikely that firms will be given much leeway for non-compliance.
The FCA Statement warns that the FCA will take “robust action” against firms breaching its requirements. In practice, we expect to see quick, targeted action taken in relation to non-compliant financial promotions (such as the removal of websites and issuing of public warnings) and enforcement action in cases of egregious or systemic non-compliance.
- The time period for implementation has been shortened
In keeping with the FCA Statement (clearly influenced by recent market events), HMT announced in its Policy Statement that the time period which firms will have to implement the new rules will be reduced from six months to four months starting from the date the relevant legislation is made. That legislation will be brought forward “when Parliamentary time allows”. Whilst this statement is vague, implementation could take place swiftly.
- Firms registered under the Money Laundering Regulations will be permitted to issue their own financial promotions
HMT also announced in its Policy Statement a limited exemption to section 21 of FSMA 2000.[1] Cryptoasset businesses that are registered with the FCA under the Money Laundering Regulations 2017[2] will be permitted to approve their own financial promotions in relation to relevant cryptoassets. Assuming this exemption is implemented,[3] those firms will not need to seek approval for their financial promotions from an FCA-authorised firm. For the time being, they will not require any further FCA registration or authorisation for this purpose (although HMT is separately consulting on a broad authorisation regime[4]).
Whilst the planned exemption is a helpful step, some firms are still likely to face challenges. In particular, firms that are not FCA-authorised or registered under the Money Laundering Regulations 2017 will still need to have relevant financial promotions approved by an appropriate FCA-authorised person,[5] unless they fall within an exemption under the Financial Promotion Order.[6] Further, the exemption is ultimately intended to be temporary. Per HMT’s separate consultation on the future financial services regulatory regime for cryptoassets,[7] the long-term objective is to require relevant firms to obtain FCA authorisation.
What Firms Will Be Affected by the New Regime?
All firms marketing unregulated cryptoassets to UK consumers, or planning to do so, should take note of the new regime. Importantly, it will capture overseas firms marketing into the UK, even if they do not have a physical presence in the UK, as well as authorised and unauthorised firms that are based in the UK. The regime will likely capture financial promotions relating to a very broad range of cryptoassets, with limited exclusions (e.g., for NFTs) and will apply “regardless of . . . what technology is used to make the promotion” (per the FCA Statement).
What Can Firms Be Doing Now to Prepare?
Firms can begin to prepare for the new regime now and, per the FCA Statement, should do so. Although the FCA’s final rules for the promotion of cryptoassets are yet to be announced, we have a good idea of what those rules will look like – the FCA has stated that they will closely follow the rules for other high-risk investments, which came into force on 1 February 2023.[8]
Please see our previous note for a fuller breakdown of the proposed rules and practical tips on what firms can be doing now. As a starting point, firms will need to identify who they are marketing to and how, and to assess how the form and substance of relevant communications will need to change in order to satisfy the proposed rules once they come into force. Firms will also need to consider how, operationally, they will ensure that the necessary approvals are obtained (or, in the case of registered firms, how they will assess and document compliance with the rules) before relevant communications are issued to UK consumers.
[1] The Financial Services and Markets Act 2000.
[2] The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
[3] The planned exemption is not subject to a formal consultation process, however the Policy Statement states that feedback on the approach set out in the statement is welcome. The Policy Statement does not set a timeframe for such feedback.
[4] HM Treasury, Future financial services regulatory regime for cryptoassets: Consultation and call forevidence , February 2023.
[5] If implemented in its current form, the Financial Services and Markets Bill (clause 20) will introduce a “regulatory gateway” pursuant to which authorised firms will generally be required to obtain permissions from the FCA in order to approve the financial promotions of unauthorised firms. It also seems likely that the approving firms will need to self-assess that they have the necessary competence and expertise in the relevant cryptoasset product. The pool of firms with the required permissions, and competence and expertise, to approve cryptoasset financial promotions is expected to be small.
[6] The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
[7] See footnote 4 above.
[8] See FCA PS22/10: Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions, and related amendments to COBS 4.
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