UK’s FCA writes to cryptoasset firms marketing to UK consumers about new financial promotion rules

From 8 October 2023 cryptoasset firms, wherever they are based in the world, must follow the FCA’s financial promotion rules when marketing to UK consumers.

Why should I read this?

Following FCA Policy Statement PS23/6 “Financial promotion rules for cryptoassets”, the FCA has written to cryptoasset firms “Cryptoasset firms marketing to UK consumers must get ready for the financial promotions regime by 8 October 2023”.

Any firm that intends to market to UK consumers on or after 8 October 2023 will need to comply with the FCA’s new financial promotion rules for cryptoassets. 

A wide range of communications are capable of being financial promotions including websites, mobile apps, social media posts and online advertising.  “Finfluencers” on social media will be subject to the rules. 

Financial promotions communicated from anywhere in the world which are capable of having an effect in the UK are within scope of the regime. The rules apply even if the financial promotion is not solely targeted at UK consumers.

It will be a criminal offence to make financial promotions for cryptoasset which do not comply with the new rules, punishable by two years’ imprisonment and/or an unlimited fine.

What should I do if I want to continue marketing cryptoassets into the UK?

Cryptoasset firms must follow one of four routes in order to lawfully promote to UK consumers.  The person making the financial promotion must either:

• Be authorised by the FCA
• Have their promotion approved by a person authorised by the FCA (who in due course are expected to need specific approval from the FCA to approve promotions under the FCA’s proposed new regulatory gateway rules)
• Be a cryptoasset business registered with the FCA under the Money Laundering Regulations 2017

Or

• The financial promotion must otherwise comply with the conditions of an exemption in the Financial Promotion Order 2005

Most cryptoassets will be defined as Restricted Mass Market Investments (RMMIs) in the FCA’s Handbook and subject to restrictions to protect consumers. 

What else do I need to know about cryptoassets as restricted mass market investments (RMMIs)?

All financial promotions of RMMI cryptoassets must carry the follow risk warning:

Don’t invest unless you’re prepared to lose all the money you invest.  This is a high-risk investment and you are unlikely to be protected if something goes wrong. 

At the end of that risk warning, online financial promotions must include the words “Take 2 mins to learn more” and a hyperlink to a lengthier risk summary.

Incentives to invest, such as refer a friend bonuses, new joiner bonuses or “early bird” offers under which a feature or benefit is only available for a limited period of time, will be banned.

Consumers contacting a firm for the first time in response to a cryptoasset financial promotion will be subject to a 24 cooling-off period before they can be sent a direct offer financial promotion.

In addition to the cooling-off period, a direct offer financial promotion relating to cryptoassets may only be made once the potential customer has been shown a personalised risk warning and the consumer has categorised themselves as a:

• Restricted investor
• High net worth investor
• Certified sophisticated investor

Finally, the consumer must be assessed to ensure that investment is appropriate for them.

In practice, significant hurdles are being put in the way of promoting cryptoassets and onboarding new investors.  The days of casually downloading an app from a link on social media onto your phone and buying cryptoasset may not be over, but those offering such services will be operating in an unregulated fashion and liable to criminal sanction.  It seems likely that both the FCA and legitimate cryptoasset firms operating within the regulations will be at pains to advertise that fact.

The wild west era of cryptoassets is coming to an end, in the UK at least.

Partner Jonathan Master, comments

“While the new rules permit cryptoasset financial promotions to be made by cryptoasset businesses which are registered with the FCA under the Money Laundering Regulations, this will only be of potential use to a small group of firms already registered as a cryptoasset exchange provider or a custodian wallet provider. 

“The rules place cryptoassets on a similar footing in terms of promotion to more traditional investments which are considered high risk.  This is consistent with the government’s view that cryptoassets and related activities should follow the standards expected of other similar financial services activities, on which HM Treasury consulted earlier this year.  While these standards will be familiar to traditional financial services firms, they will be new to cryptoasset firms which - until now - have largely avoided regulation.”

How Eversheds Sutherland can help?

Eversheds Sutherland’s Global Crypto Assets practice comprises leading practitioners in the areas of financial regulation, technology and payment services with experience in shaping market standards in the crypto industry (both CeFi and DeFi) and navigating through the still developing legal and regulatory framework around products. This includes the categorisation/regulatory classification of tokens and the implication this has on the legal framework around the exchange, transfer or custody of those tokens. We have been involved in a number of large scale open banking projects employing DLT systems as well as advising governments, regulators and industry associations on drafting regulation and setting standards for various aspects around DLT use cases and business models, mostly in financial markets and services. These projects often include innovative forms of cooperation between regulated financial services providers and tech providers across several jurisdictions.