Cryptoasset firms marketing to UK consumers must get ready for financial promotions regime

All crypto asset firms marketing to UK consumers, including firms based overseas, will soon need to comply with the new UK financial promotions regime. Firms must start preparing now for this regime. We will take robust action against firms breaching these requirements.

In January 2022, the Government published a consultation response setting out its intention to legislate to bring the promotions of certain crypto assets within the FCA’s remit. This regime will apply to all firms marketing crypto assets to UK consumers regardless of whether the firm is based overseas or what technology is used to make the promotion.

On 1 February 2023, the Government published a policy statement on its approach to crypto asset financial promotions regulation. The policy statement sets out the Government’s intention to introduce a bespoke exemption in the Financial Promotion Order for crypto asset businesses registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLRs’).

This exemption will enable crypto asset businesses that are registered with the FCA under the MLRs, but who are not otherwise authorized persons, to communicate their cryptoasset financial promotions to UK consumers. The policy statement also set out the Government’s intention to reduce the implementation period for the regime from 6 months to 4 months from the relevant legislation being made in Parliament.

Subject to Parliamentary approval, when the regime comes into force there will be 4 routes to communicating crypto asset promotions to UK consumers:

The promotion is communicated by an FCA-authorised person.
The promotion is made by an unauthorized person but approved by an FCA-authorised person. Legislation is currently making its way through Parliament which, if made, would introduce a regulatory gateway that authorized firms will need to pass through to approve financial promotions for unauthorized persons.
The promotion is communicated by a crypto asset business registered under the MLRs with the FCA.
The promotion otherwise complies with the conditions of an exemption in the Financial Promotion Order.
For these purposes, a firm only authorized under the Electronic Money Regulations or the Payment Services Regulations is not considered an ‘authorized person’ and so cannot communicate or approve financial promotions. This is set in legislation and cannot be modified by FCA rules.

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 (FSMA), which is a criminal offense punishable by up to 2 years imprisonment.

We will publish our final rules for crypto asset promotions once the relevant legislation has been made. Subject to any changes in circumstances, we expect to take a consistent approach to crypto assets to that taken in our new rules, in place from 1 Feb 2023, for other high-risk investments. This would mean firms being required to use specific risk warnings and positive frictions (such as a 24-hour cooling-off period) in their consumer journeys, in addition to the overarching requirement that their promotions are clear, fair, and not misleading. Further details are set out in our Consultation Paper (CP22/2) and Policy Statement (PS22/10) for high-risk investments.

Crypto assets remain high risk. We have repeatedly warned that consumers should be prepared to lose all of their money if they buy crypto assets. Recent events such as the high-profile failure of several crypto asset firms further highlight the riskiness of these products. There is unlikely to be any compensation under the Financial Services Compensation Scheme for consumers who lose money.

Cryptoasset businesses marketing to UK consumers, including firms based overseas, must get ready for this regime.

Acting now will help ensure they can continue to legally promote to UK consumers. We encourage firms to take all necessary advice as part of their preparations.

The Government intends to grant the FCA supervision and enforcement powers over MLR-registered cryptoasset businesses relying on the new bespoke exemption. We will take robust action when we see firms promoting crypto assets to UK consumers in breach of the requirements of the financial promotions regime. This may include, but is not limited to, takedowns of websites that are in breach, issuing public warnings, and enforcement action.

Expectations for crypto asset businesses applying for Money Laundering registration
As set out in Regulations 8 and 9 of the MLRs, crypto asset businesses must register with the FCA if they are carrying on certain crypto asset activities. Cryptoasset businesses are within the scope of the MLRs if they provide, by way of business, one or more of the services described in Regulation 14A, and this business is carried on in the United Kingdom. More details are available on when firms need to register with the FCA.

Cryptoasset businesses and any person who is an officer, manager, and beneficial owner in the business, will be subject to the fit and proper requirements under Regulation 58A of the MLRs. We will take into account all relevant matters when assessing fitness and propriety, including the businesses’ financial promotions. As part of the fitness and propriety assessment, we need to consider whether a crypto asset business and any officer, manager, or beneficial owner has acted and may be expected to act with probity.

We expect crypto asset businesses to be ready, willing, and organised at the point of their application. This includes having a bona fide UK presence as per Regulations 8 and 9. The applicant should be able to demonstrate they understand the Regulations and evidence compliance with the requirements set out in the MLRs. Applicants will find Chapter 22 of The Joint Money Laundering Steering Group guidance helpful.

The FCA website provides help with the registration process. We have included a page providing feedback on good and poor-quality applications that we have received since the MLRs came into force in January 2020.

Cryptoasset businesses that are already registered under the MLRs will be able to communicate their financial promotions for crypto assets, subject to complying with the conditions of the exemption and the relevant FCA rules. They will not have to apply for any further permissions to communicate their promotions.

Leave a Reply

Your email address will not be published. Required fields are marked *