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.
