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How fair are new crypto financial promotion rules?

Head of Financial Services Nigel Brahams comments on the UK’s financial promotion regime.

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Published 14 November 2023

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As of October 8, all firms marketing cryptoassets to UK consumers, regardless of their location, must comply with the UK’s financial promotion regime. Previously, this regime applied mainly to traditional financial investments. The move aims to prevent misselling of complex, high-risk crypto products to consumers, especially those on the fringes of society. The Financial Conduct Authority (FCA) is concerned about the lack of understanding among consumers who have entered the crypto market, with 10% of the UK population having purchased cryptoassets.

The UK Financial Promotion Order (FPO) defines a “cryptoasset” as “any cryptographically secured digital representation of value or contractual rights that:

-can be transferred, stored or traded electronically, and
-uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

The FPO defines “qualifying cryptoassets” as a cryptoasset which is transferable and fungible (i.e. Bitcoin, Ether, Tether) but not non-fungible tokens (NFTs) or products which are already “electronic money” or existing FCA “controlled” investments, i.e. deposits, equities, futures, fund units.

The UK government aims to establish the country as a crypto hub, and regulatory measures are seen as crucial for promoting ethical businesses and protecting investors. The FCA expects activities in crypto to be integrated into its mainstream authorization regime in the coming years. This follows earlier regulations requiring crypto firms to register with the FCA under the Money Laundering Regulations.

Financial promotions can be real time or non-real time. Real-time financial promotions mean actual in-person calls or meetings. For the purposes of this article, we will focus on direct offer non-real time financial promotions, which account for almost all promotions of cryptoassets. These include websites, mobile apps, social media posts and online advertising customers can accept via a click.

Financial promotions of cryptoassets must now be approved by an FCA-authorized firm, or the promoting firm must be FCA authorized. Exemptions exist for firms registered under money laundering regulations, but all promotions must include clear risk warnings. Retail-targeted products must feature mandatory health warnings. Additionally, a 24-hour cooling-off period has been introduced for consumers viewing direct offer financial promotions of cryptoassets for the first time.

Authorized persons approving crypto financial promotions must possess appropriate competence and experience. Endorsing firms must conduct due diligence to verify product claims, such as stability or asset backing. Overall, these regulatory measures are seen as striking a balance between consumer protection and supporting the growth of the crypto industry in the UK.

This article was first published by Money Marketing on 10 November 2023.

For more information, visit our Financial Services lawyers page.

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Longer Reads

How fair are new crypto financial promotion rules?

Head of Financial Services Nigel Brahams comments on the UK’s financial promotion regime.

Published 14 November 2023

Associated sectors / services

Authors

As of October 8, all firms marketing cryptoassets to UK consumers, regardless of their location, must comply with the UK’s financial promotion regime. Previously, this regime applied mainly to traditional financial investments. The move aims to prevent misselling of complex, high-risk crypto products to consumers, especially those on the fringes of society. The Financial Conduct Authority (FCA) is concerned about the lack of understanding among consumers who have entered the crypto market, with 10% of the UK population having purchased cryptoassets.

The UK Financial Promotion Order (FPO) defines a “cryptoasset” as “any cryptographically secured digital representation of value or contractual rights that:

-can be transferred, stored or traded electronically, and
-uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

The FPO defines “qualifying cryptoassets” as a cryptoasset which is transferable and fungible (i.e. Bitcoin, Ether, Tether) but not non-fungible tokens (NFTs) or products which are already “electronic money” or existing FCA “controlled” investments, i.e. deposits, equities, futures, fund units.

The UK government aims to establish the country as a crypto hub, and regulatory measures are seen as crucial for promoting ethical businesses and protecting investors. The FCA expects activities in crypto to be integrated into its mainstream authorization regime in the coming years. This follows earlier regulations requiring crypto firms to register with the FCA under the Money Laundering Regulations.

Financial promotions can be real time or non-real time. Real-time financial promotions mean actual in-person calls or meetings. For the purposes of this article, we will focus on direct offer non-real time financial promotions, which account for almost all promotions of cryptoassets. These include websites, mobile apps, social media posts and online advertising customers can accept via a click.

Financial promotions of cryptoassets must now be approved by an FCA-authorized firm, or the promoting firm must be FCA authorized. Exemptions exist for firms registered under money laundering regulations, but all promotions must include clear risk warnings. Retail-targeted products must feature mandatory health warnings. Additionally, a 24-hour cooling-off period has been introduced for consumers viewing direct offer financial promotions of cryptoassets for the first time.

Authorized persons approving crypto financial promotions must possess appropriate competence and experience. Endorsing firms must conduct due diligence to verify product claims, such as stability or asset backing. Overall, these regulatory measures are seen as striking a balance between consumer protection and supporting the growth of the crypto industry in the UK.

This article was first published by Money Marketing on 10 November 2023.

For more information, visit our Financial Services lawyers page.

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