In a 2018 report, the Cryptoassets Taskforce (“CATF”) identified several risks cryptoassets may pose to consumers. The report outlined a significant risk of harm posed to consumers buying cryptoassets due to a lack of awareness of the inherent risks of such assets. The CATF determined that this lack of awareness was attributable to the quality of cryptoasset advertising, which often targets retail, rather than professional, investors and is typically neither fair or clear, but instead misleading.
At the outset of 2022, the UK Government announced its intention to legislate on the matter and bring ‘qualifying cryptoassets’ within the scope of the UK’s financial promotion regime and therefore the Financial Conduct Authority’s (“FCA”) regulatory rules. This has now been achieved through the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023.
With the legislative framework in place, the FCA has issued a Policy Statement (PS23/6) confirming cryptoassets will be categorised as restricted mass market investments and subject to the marketing restrictions placed on non-readily realisable securities.
What does this mean for firms?
By bringing cryptoassets within the scope of the financial promotions regime, it means firms previously promoting services relating to qualifying cryptoassets are now subject to the general prohibition on communicating an invitation or inducement to engage in investment activity. Only authorised persons, (FCA-approved entities), their Appointed Representatives or a person able to rely on an exemption are allowed to communicate a financial promotion. Even if a firm is exempt from the general prohibition, the FCA have still introduced strict rules on the content and target audience of a promotion.
Given it is not currently a requirement for firms offering services relating to cryptoassets to be directly authorised with the FCA, the need to be authorised would create a substantial barrier for current firms promoting crypto assets and greatly restrict consumers’ access to qualifying cryptoassets and services. The Treasury has therefore designed a specific exemption for firms currently registered with the FCA for money laundering purposes.
Although this means firms registered for AML purposes will be able to market their products and services in the UK, they will still need to comply with the FCA’s rules relating to ‘Restricted Mass Market Investments’ as cryptoassets have been placed in this category of investment.
The New Rules
The imminent rules will come into force on 8th October 2023. By this date, every in-scope firm will be required to ensure that a financial promotion relating to a restricted mass market investment includes and adheres to the following:
- A prescribed form of risk warning
- Does not include any form of incentive to invest and
- The firm must also restrict the communication and approval of direct offer financial promotions in relation to restricted mass market investments except where certain conditions are satisfied
For direct offer financial promotions, these conditions include:
- A cooling-off period being provided to the client
- A personalised risk warning being issued and
- The client meeting strict categorisation requirements as well as the firm conducting an appropriateness assessment
The wider and more general requirement for financial promotions will also apply to firms relying on the MLR registration exemption, in that all promotions must be clear, fair and not misleading.
With the new rules coming into force in October this year, firms marketing cryptoassets to both UK and international consumers must prepare to comply with PS23/6 provisions now. Cryptoasset providers will undoubtedly face challenges in the months ahead. Firms must now overhaul their entire marketing approach in anticipation of the deadline. The UK government and regulator have taken a hard-line position on the crypto sector. As part of the FCA’s mission to protect consumers, the introduction of PS23/6 is likely a precursor for future regulation to be expected for the sector. The FCA has encouraged firms to seek advice from compliance professionals in preparation for the rules and the regulator has warned it will take robust action against firms who fail to comply.
How can Complyport help?
If this article has raised any questions about financial promotions or cryptoasset regulations, please contact Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.
Complyport has been working closely with applicant firms for many years to navigate the changing requirements for communicating financial promotions that are subject to the FCA’s regulatory requirements and recent emphasis on restricting and limiting the promotion of ‘high-risk investments’.
About Complyport
Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor. We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice including support with:
- Financial Promotions guidance, support, and management software solutions
- Prudential support, IFPR, ICARA and financial resilience advice
- Operational resilience & Cybersecurity advice
- CASS advice and protections of client assets
- Comprehensive compliance work-flow management software
- Compliance managed services and resourcing compliance personnel
- Financial Crime and Forensics
- Consumer Duty implementation advice
- Skilled Person Reviews and Regulatory Investigation
Contact our Head of Regulatory Business Solutions, Jan Hagen via email at: jan.hagen@complyport.co.uk to book a free consultation.
