Introduction
Extension of the FCA Rules to financial promotions in relation to qualifying crypto assets
Implications for those who carry out financial promotions in relation to cryptoassets
Application
On 8 October 2023, the Financial Conduct Authority (FCA) published new rules (FCA Rules) relating to the financial promotion of crypto assets following legislation to include promotions in relation to qualifying crypto assets within the scope of the Kingdom's Financial Promotions Regime United (the Scheme) under section 21 (restrictions on financial promotion) of the Financial Services and Markets Act 2000 (FSMA). The FCA Rules extended the Regime to crypto assets to capture financial promotions capable of having an effect on UK consumers in order to address potential harm to consumers and ensure that consumers appreciate any investment risk. The FCA Rules apply alongside the existing obligations of relevant crypto asset service providers carrying on business in the UK to obtain FCA registration under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations. 2017 (the MLR).
Extension of the FCA Rules to financial promotions in relation to qualifying crypto assets
The FCA Rules make it an offense to communicate a financial promotion in relation to qualifying cryptoassets, unless the promotion:
- has been carried out by a person authorized under FSMA (authorized person);
- has been approved by an authorized person; either
- It is carried out by a person registered with the FCA under the MLR, unless an exemption applies.
What constitutes a qualifying cryptoasset subject to the FCA Rules is intentionally broad and includes any digital representation of value or contractual rights that are cryptographically secured, that can be transferred, traded or stored electronically (including through distributed ledger technology) that are fungible. and transferable (qualified cryptoassets). . This definition will encompass many cryptocurrencies (e.g. Bitcoin), stablecoins, and utility tokens. Importantly, outside the scope of the FCA Rules are non-fungible tokens, digitally issued fiat currency or e-money tokens. However, it will be necessary to determine on a case-by-case basis whether a particular cryptoasset falls within the scope of the FCA Rules, taking into account the characteristics of the relevant cryptoasset.
โFinancial promotionโ is defined broadly and captures any โpromotionalโ communication that is an invitation or inducement to any controlled activity (including trading, arranging agreements, administering or providing advice) in relation to a qualified cryptoasset. The FCA Rules are technology agnostic, meaning that what is considered a financial promotion applies regardless of the technology platform or medium used.
Reflecting the scope of the Regime, the FCA Rules have a global effect: they apply to all persons carrying out financial promotions capable of having an effect in the United Kingdom, even if those persons carrying out the financial promotion are located outside the UK. United Kingdom.
In addition to the FCA Rules, non-technical aspects of financial promotions of cryptoassets (for example, issues related to crime, social responsibility, claims of superiority, fear and distress, and other claims that do not relate to the specific characteristics of the product) will continue to apply. Be subject to the CAP Code regulated by the UK Advertising Standards Authority.
Implications for those who carry out financial promotions in relation to cryptoassets
Anyone wishing to carry out financial promotions of cryptoassets having effect in the UK must be an authorized person, have such promotions approved by an authorized person or be registered with the FCA, unless an exemption applies.
Any financial promotion must comply with a set of rules applicable to restricted mass market investments set out in the FCA's Conduct of Business (COBS) Handbook which aims to ensure that consumers receive timely, high-quality information to enable them to make informed decisions. effective investment decisions without being pressured, misled or inappropriately incentivized to invest in products that do not meet your needs or risk tolerance.
Those who intend to carry out or approve financial promotions regarding qualified cryptoassets must guarantee compliance with the following requirements:
- Promotions must be fair, clear and not misleading.
- Clear and prominent risk warnings and risk summaries must be provided and can be referenced by link.
- There should be no incentives to invest (for example, refer a friend or bonuses for new members).
- Direct offer financial promotions will also need to be accompanied by a cooling-off period, a personalized risk warning and a suitability risk assessment.
The FCA has published updated guide on the FCA Rules regarding how the rules might be applied in practice. While it is not technically necessary to follow the guidance to achieve compliance, if a person acts in accordance with the guidance then the FCA will consider that person to have complied with the rule or requirement referred to in the guidance.
One day after the FCA Rules came into force, the FCA reported that it had issued 146 alerts about non-compliant cryptoasset financial promotions and maintains a warning list of persons who are not authorized to operate in the United Kingdom. The FCA has powers to remove illegal content, issue public warnings or initiate enforcement actions which could include injunctions, compensation orders or, in the most serious cases, criminal proceedings. The FCA also has powers to prevent authorized persons from approving financial promotions of cryptoassets under section 55L of the FSMA, and within two days of the FCA Rules coming into force it demonstrated its willingness to exercise these powers by publishing details of restrictions on refundingsociety.com Ltd.
Many companies have faced important challenges prepare for the FCA Rules, in particular compliance with "back-end" requirements, such as ensuring a cooling-off period or carrying out suitability assessments. Many potential proponents of cryptoasset financial promotions, particularly those based outside the UK seeking to target UK customers who may not have previously considered MLR registration let alone becoming an authorized person, have taken steps to protect services directed to the UK as they assess their position to ensure compliance with the Regime.
For more information on this topic please contact Sara MacDonald, Jason Fisher either Mark Bagnall in Wiggin by phone (+44 1242 224 114) or email ([emailย protected], [emailย protected] either [emailย protected]). Wiggin's website can be accessed at www.wiggin.co.uk.
