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Ready For Crypto Assets – Will You Meet FCA Expectations?

Following our last blog things are really hotting up in the crypto space!

We said that crypto assets will fall under tougher financial promotions rules when they are formally allowed to be offered to retail customers from the 8th of October. Through our ongoing regulatory monitoring we detected a follow-up communication from the FCA, stressing that although the technical requirements come into effect next month, firms have until January 2024 to introduce some of the more “complicated requirements”. The details of the new financial promotion rules may be found in PS 26/6 (‘Financial Promotion rules for cryptoassets’).

So, what are the “more complicated requirements”? Well, for distribution methods using direct offer financial promotions, which in a non-advised situation is likely to be the case, firms will need to satisfy three mandatory conditions. Although these conditions create positive friction, which is ultimately designed to protect retail customers, these will also complicate the customer journey significantly and will need time to plan and implement.

Firstly, there will be a mandatory 24-hour cooling off period, between the point when the customer makes an inquiry, through to reengaging with the customer and allowing them to make an application. During this period, firms will be able to engage with prospective customers and use this time to gather critical information, in particular information that will enable them to assess the appropriateness of the product/service for the customer and provide personalised risk warnings. Firms may also put this time to good use, to gather core customer information, such as proof of ID and other basic information to enable it to perform routine AML checks. Firms will need to be mindful of the 5th Money Laundering Directive to ensure they are meeting the regulator’s expectations in this area. At the end of the period, the firm will need to reengage the customer to check that they understand and accept the risks and want to proceed, or not proceed.

Retail customers will also need to be categorised - before providing details of the direct offer financial promotion, firms will need to take reasonable steps to establish that the retails customer is either a certified high net investor, certified sophisticated investor, self-certified sophisticated investor, or restricted investor. Again, this could be handled during the cooling-off period.

In addition to specific risk warnings, the most significant requirement for all firms offering crypto assets for investment purposes is the requirement to understand whether the investment is ‘appropriate’ for the customer. Up to now, this is something that many crypto asset service providers may not have needed to consider, although the exact requirements for assessing appropriateness have not been prescribed in the rules. Critically, firms will need to establish whether the customer has sufficient knowledge and experience to fully understand the particular risks associated with the product. Firms are likely to experience difficulties at this point, as many customers are unlikely to have dealt with crypto assets in the past and it is also reasonable to assume that there is a significant educational gap around these complex products.

In our view, the FCA is relying upon firms to articulate to their customers the particular nature and risks of these types of investments; indeed, the risk warnings which are mandatory from October only specify the severity of risk, not the mechanics of the products and the nature of the risks themselves.

Also, as we have seen with the FCA Policy Statement (PS 22/10) in 2022, regarding the promotion of high-risk products, the regulator is extremely ‘tuned in’ the potential negative outcomes of higher-risk products. The opening of the gate to making this product available to retail customers follows hot on the heels of the Consumer Duty, which is now a landmark piece of regulation for protecting retail consumers in the UK.

How can we help you? 

If you are a firm considering offering crypto asset services to UK retail customers, firstly you will need to be registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017, before being permitted to do so. Doing so without permission is a criminal offence. As part of the process for granting registration, the FCA will need details of how you plan to satisfy the new financial promotions rules. We are able to assist you in the registration process and in formulating your financial promotions process, ensuring that it meets the requirements of the regulator.

Even if you already hold the necessary permissions, but need to understand the new process, why not get in touch with us by calling 020 7436 0630 or sending an email to