The UK Financial Conduct Authority has published1 near final rules setting out its approach to regulating the financial promotion of ‘qualifying cryptoassets’. The new rules mean financial promotions on cryptoassets are only permitted if made or approved by a firm with certain status with the FCA2. Firms promoting crypto must put in place clear risk warnings and ensure adverts are clear, fair and not misleading. The rules are expected to take effect from October 2023. The FCA are also consulting on guidance to accompany the new rules.3
Those restrictions will apply to communications amounting to financial promotions of qualifying cryptoassets, including promotions made via social media, published on websites, adverts placed through print, broadcast or online media, marketing brochures, emails or apps. Note that communications originating outside of the United Kingdom will be caught by the financial promotion rules if they are “capable of having an effect in the United Kingdom”4.
To which assets do the new marketing rules apply?
Cryptoassets are defined as “cryptographically secured digital representation of value or contractual rights that: (a) can be transferred, stored or traded electronically; and (b) uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
The new rules apply to “qualifying cryptoassets”, which are cryptoassets that are both fungible and transferable and which do not fall within one of a number of categories of excluded assets.
These categories of excluded assets are those already specified to be “controlled investments” under the financial promotions rules (including shares, units in collective investment schemes, options, futures, etc), electronic money, fiat currency (including fiat currency in digital form) or cryptoassets that cannot be transferred or sold in exchange for money or other cryptoassets except by way of redemption by the issuer and which may only be used to acquire goods or services from the issuer (or a limited network of service providers).
New requirements on marketing communications
Authorised firms and registered persons will be required to ensure that any financial promotion relating to qualifying cryptoassets complies with the applicable requirements:
- Mandatory risk warnings
- Cooling off periods
- Bans on incentives to invest
- Overarching requirement for the financial promotion to be fair, clear and not misleading.
Who can make financial promotions relating to cryptoassets?
Financial promotions relating to qualifying cryptoassets may be made by
- FCA-authorised persons; or
- “registered persons” being persons required to be registered under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Money Laundering Regulations” or “MLRs”). This includes cryptoasset exchange providers and custodian wallet providers.
A financial promotion may be made a person that does not fall within the above two categories if the financial promotion has been approved by an FCA-authorised person. Registered persons are not permitted to approve financial promotions for other persons. In line with the approach set out in the FCA’s earlier consultation paper on financial promotion rules for high risk investments5, the FCA have categorised qualifying cryptoassets as “Restricted Mass Market Investments (RMMI)” which means that the marketing of cryptoassets to the public is subject to certain restrictions.
While financial promotions may generally be made where a statutory exemption applies, a number of exemptions have been (or will be) disapplied in respect of financial promotions relating to cryptoassets. Such excluded exemptions include those for high net worth individuals, self-certified sophisticated investors, associations of high net worth or sophisticated investors and sale of goods and supply of services.6
In anticipation of the new regime requiring a specific permission to approve financial promotions, the FCA has indicated that a firm proposing to approve financial promotions relating to cryptoassets should notify the FCA.
Other UK cryptoasset developments
The new rules relating to financial promotion of cryptoassets comes in the context of a number of other regulatory developments in this area:
- The UK Government are currently legislating in the Financial Services and Markets Bill 2022-23 to regulate fiat-backed stablecoins used for payments. The Bill is currently at the Report Stage in the House of Lords.
- The UK Government have published a consultation7 on introducing a new regulatory regime for cryptoassets, which seeks to introduce new regulated activities relating to cryptoassets.
- The FCA have a number of projects to engage with businesses and consumers in the cryptoasset space, including: the Crypto Sprint8 seeking views on future regulation; Scamsmart9 and Investsmart10 campaigns to warn consumers about the risks of investment in cryptoassets; and ongoing engagement with cryptoasset business models through the Regulatory Sandbox and the Innovation Pathways service.
Next steps
The new rules are expected to come into effect on 8 October 2023 and the accompanying guidance is expected to be finalised in Autumn 2023. We will continue to monitor and report on developments in this area. Please reach out to your usual Akin contact or to the authors for further information.
1 https://www.fca.org.uk/news/press-releases/fca-introduces-tough-new-rules-marketing-cryptoassets
2 Unless an applicable exemption applies.
3 https://www.fca.org.uk/publication/guidance-consultation/gc23-1.pdf
4 Section 21(3) Financial Services and Markets Act 2000
5 https://www.fca.org.uk/publication/consultation/cp22-2.pdf
6 The exemptions for high net worth individuals and self-certified sophisticated investors only apply to specific investments listed in the relevant articles of the FPO. These investments are typically financial instruments issued by unlisted companies. Articles 51 and 61 have been disapplied for communications relating to qualifying cryptoassets by the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023.
7 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1133404/TR_Privacy_edits_Future_financial_services_regulatory_regime_for_cryptoassets_vP.pdf
8 https://www.fca.org.uk/firms/cryptoassets/cryptosprint
9 https://www.fca.org.uk/scamsmart
10 https://www.fca.org.uk/investsmart
