Cryptoassets are often in the news and have come under greater
regulatory scrutiny in recent years. Incidents such as the collapse of FTX, along with deficiencies in
governance, risk management, and operational resilience, as well as
price volatility, have raised public concerns and attention.
Currently, cryptoassets remain largely unregulated in the UK.
However, in an effort to protect consumers, the Financial Conduct
Authority (FCA) has introduced new financial promotion rules
governing the marketing of cryptoassets in the UK, which apply to
all firms regardless of whether they are based overseas or what
technology is used to make the promotion.
Integration of Cryptoassets into the Financial Promotions
Regime
One significant change is the integration of cryptoassets into
the financial promotions regime (FinProm regime). All cryptoasset
firms marketing to UK consumers, including those based overseas,
must comply with UK financial promotion rules. Under these new
rules, there are four lawful routes for communicating cryptoasset
promotions to UK consumers:
1. The promotion is communicated by an FCA
authorised person;
2. The promotion is made by an unauthorised
person but approved by an FCA authorised person;
3. The promotion is communicated by a
cryptoasset business registered with the FCA under the Money
Laundering, Terrorist Financing and Transfer of Funds (Information
on the Payer) Regulations 2017 (MLRs); or
4. The promotion is covered by one of the
exemptions in the Financial Promotion Order 2005.
Firms authorised only under the Electronic Money Regulations or
the Payment Services Regulations are not considered
“authorised persons” and cannot communicate or approve
financial promotions.
Consequences of Non-Compliance
Promotions that do not follow one of these routes will violate
section 21 of the Financial Services and Markets Act 2000 (FSMA),
which is a criminal offence. This can result in penalties of up to
two years in prison, unlimited fines, or both. The FCA has
communicated that it is prepared to take strong action against
non-compliance, which could include:
- Unlimited fines
- Imprisonment
- Enforcement actions
- Unenforceable contracts
- The removal of websites or apps
Promotions communicated through routes 1, 2, or 3 must adhere to
FCA rules, ensuring that all promotions are fair, clear, and not
misleading, with prominent risk warnings. This includes providing a
prescribed risk warning and summarising risk information on all
crypto promotions, as well as tracking various metrics related to
client categorisation and appropriateness assessments, among
several other requirements set forth by the FCA.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.