In June 2023, the Financial Conduct Authority (“FCA”) issued Policy Statement 23/6 (the “Policy Statement”), outlining the financial promotion rules for cryptoassets. The new regime took effect on October 2023, following a four-month transition period. As of 2024, all firms that market cryptoassets need to follow the FCA guidelines to remain compliant. This move signifies a substantial shift in the regulatory landscape, aiming to bolster consumer protection and market integrity.
Through the Policy Statement, the FCA aims to minimise the harm to consumers by ensuring that they only invest in cryptoassets if they comprehend the risks and can afford potential losses. The FCA seeks to prevent unexpected losses and failures that could undermine the financial system. The ultimate goal is to enhance confidence in UK financial markets and create a fairer market where firms compete on a level playing field, providing consumers with clear, accurate information to make informed investment decisions.
Under the Policy Statement, cryptoassets have been classified as Restricted Mass Market Investments (“RMMI”). This categorisation means that while cryptoassets may be marketed to retail investors, they are subject to stringent restrictions designed to protect consumers. Under the new framework, the key requirements for marketing cryptoassets include:
- Risk Warnings: All cryptoasset financial promotions must include clear and prominent risk warnings. The standard risk warning is: “Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.”
- Banning Incentives: The FCA has prohibited incentives to invest, such as ‘refer a friend’ bonuses or other monetary or non-monetary benefits, to prevent undue influence on consumer investment decisions.
- Cooling-Off Period: First-time investors must observe a 24-hour cooling-off period before they can proceed with a Direct Offer Financial Promotion (“DOFP”). This period allows consumers to thoroughly consider the investment before committing their funds.
- Personalised Risk Warning Pop-Up: First-time investors must be presented with a personalised risk warning before they can view a DOFP to ensure they understand the high-risk nature of the investment.
FCA Authorisation and Compliance
Firms marketing cryptoassets to UK consumers must comply with at least one of the below regulatory requirements:
- The promotion is communicated by an authorised person, i.e. ‘a person authorised by the FCA to carry out a regulated activity’.
- The promotion is made by an unauthorised person but approved by an authorised person.
- The promotion is communicated by (or on behalf of) a cryptoasset business registered with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
- The promotion is otherwise communicated in compliance with the conditions of an exemption in the Financial Promotion Order.
Firms not complying with the above rules can have their websites taken down, be placed on the FCA’s warning list placing restrictions on firms to prevent harmful promotions and enforcement action. Firms illegally communicating Financial Promotions under these rules constitutes a criminal offence, punishable by an unlimited fine and/or two years in prison. The FCA has emphasised its commitment to robust enforcement, including website take-downs and placing firms on its warning list.
On November 2023, the FCA issued the Finalised Guidance on Cryptoasset Financial Promotions FG23/3 which further clarified that all cryptoasset financial promotions must be fair, clear and not misleading. Some important considerations for authorised firms to consider when complying with the FCA rules include:
- Promotional materials should be easy to understand, avoiding unnecessary jargon or complex language. Important information should not be disguised or diminished.
- Promotions should enable consumers to take an informed view of the risks involved.
- Firms should provide a balanced view of the potential risks and rewards associated with cryptoassets, avoiding the prominence of benefits over risks.
- Firms should avoid making exaggerated claims about the potential benefits of cryptoassets.
- All relevant information that could affect investment decisions must be disclosed.
Conclusion
The introduction of the Policy Statement aims to align cryptoasset financial promotions with the FCA’s broader goals of consumer protection. Firms must navigate this new regulatory landscape carefully, ensuring compliance while promoting innovation in the crypto-asset sector.
How Can Complyport Help?
As experienced regulatory consultants, Complyport can assist firms in understanding and implementing the new FCA requirements for cryptoasset promotions. We offer tailored support to ensure compliance and help firms navigate the complexities of the regulatory environment. Contact our team for personalised guidance and support.
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