UK Proposals to Extend Regulatory Perimeter to Capture Promotion of Unregulated Crypto-Assets

Shearman & Sterling LLP

Shearman & Sterling LLPHM Treasury has released proposals to amend the U.K.’s financial promotion rules to subject unregulated crypto-assets to the financial promotions regime. The Government proposals aim to enhance consumer protection, ensure market integrity and fight against financial crime. Responses to the consultation can be submitted until October 25, 2020. The Government is separately consulting on limiting the ability of authorized firms to approve financial promotions of unauthorized without consent from the Financial Conduct Authority.

The U.K. financial promotion rules provide that a person may not communicate a financial promotion—an invitation or inducement to engage in an investment activity—unless the communication is exempt, the firm is authorized to carry on a regulated activity or the communication is approved by an authorized firm. Any communication must be fair, clear and not misleading.

In line with the FCA’s guidance on which crypto-assets fall within the U.K. regulatory perimeter, certain securities tokens and e-money tokens are subject to regulation and subject to the financial promotion regime. However, the promotion of unregulated crypto-assets does not need to comply with the financial promotion requirements. The Government is therefore proposing to amend the Financial Promotion Order to add unregulated crypto-assets to the list of controlled investments. The change would capture within the financial promotion rules all stablecoins not currently classed as a regulated security or e-money token. However, only crypto-assets that are both fungible and transferable would be within scope of the regime. In addition, a new exemption to the FPO would exempt vendors offering to accept crypto-assets in exchange for goods or services, and buyers offering crypto-assets to pay for goods or services.

View the consultation paper on bringing unregulated crypto-assets within the financial promotion regime.

View details of the FCA’s guidance on the regulatory perimeter and crypto-assets.

View the Government’s consultation on approval of financial promotions by unauthorized firms.

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