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Are you ready for the cryptoasset financial promotions regime?

Jul 10, 2023 9:56:39 AM

Background

In July 2023, the FCA issued a letter to crypto firms entitled Cryptoasset firms marketing to UK consumers must get ready for the financial promotions regime by 8 October 2023.

What are the key points of the letter?

The Government has now legislated to bring qualifying cryptoassets within the scope of the financial promotion regime. From 8 October 2023, all firms marketing cryptoassets to UK consumers, including firms based overseas, must comply with the regime. The FCA expects that most, if not all, cryptoasset firms with UK retail customers will be within the scope of the regime.

When the regime comes into force, there will be four routes to lawfully communicate cryptoasset promotions to UK consumers:

  1. The promotion is communicated by an authorised person.
  2. The promotion is made by an unauthorised person but is approved by an 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). 
  4. The promotion otherwise complies with the conditions of an exemption in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“the Financial Promotion Order). 

Promotions that are not made using one of these routes will be in breach of section 21 of the Financial Services and Markets Act 2000, which is a criminal offence punishable by up to two years imprisonment, an unlimited fine, or both.

The FCA will take robust action against persons illegally promoting to UK consumers. This may include, but it is not limited to, placing firms on a warning list, taking steps to remove or block any illegal financial promotions such as websites, social media accounts and apps, and enforcement action.

Any promotions communicated through routes 1, 2 or 3 need to comply with FCA rules, which are set out in the Policy Statement PS23/6. These require firms to use specific risk warnings and positive friction (such as a 24-hour cooling off period for first-time investors) in their consumer journeys, in addition to the overarching requirement that their promotions are fair, clear and not misleading.

On 8 June 2023, the FCA also published a Guidance Consultation, GC23/1. This aims to provide additional clarity for firms on the standards expected.

Unregistered or unauthorised cryptoasset businesses marketing to UK consumers should now consider which of the four legal routes they will use to make their financial promotions, how they will meet the requirements of that route and the associated FCA rules that apply to cryptoasset promotions set out in PS23/6. They should carefully consider how they will deal with UK customers if they are unable to communicate financial promotions to them. The FCA expects firms to clearly communicate any changes to services they will provide to UK consumers and give consumers adequate time to respond to any changes before they go into effect.

If firms decide to no longer provide services to UK consumers, the FCA expects them to have in place orderly wind-down plans to minimise any impact of this on UK consumers.

It is expected that the main way cryptoasset businesses will be able to communicate financial promotions to UK consumers is by being registered with the FCA under the Money Laundering Regulations (MLRs). If they apply for registration, the FCA will ask for the information specified on its website and in its application form. It is not the FCA’s role to work with applicants to prepare their applications and if they need help in preparing an application, they should seek professional advice.

Firms are asked to confirm receipt of this letter and to respond to the questions set out in the survey linked to it no later than 4 August 2023.

The FCA will be arranging roundtables in July on its expectations of applicants seeking to register with the FCA under the MLRs. Firms can email pda@fca.org.uk to express their interest.

How can we help you?

Thistle Initiatives has supported firms as a trusted digital assets compliance and regulatory advisor, particularly through FCA cryptoassets registration. Our team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your crypto firm MLR registration or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 0207 436 0630 or send an email to info@thistleinitiatives.co.uk.