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UK will tighten the regulation of cryptoassets this year

The UK government is cracking down on misleading advertising in the cryptoasset markets.

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Published 26 January 2022

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The UK government is cracking down on misleading advertising in the cryptoasset markets. The move is in response to concerns that advertisements (which are often targeted at retail investors) can sometimes overstate the benefits of, without adequately warning about the risks and volatility commonly associated with, investments in this space. The government therefore plans to expand the scope of the Financial Promotion Order[1] to capture certain cryptoassets.

Regulatory safeguards have long been in place to protect consumers from misleading financial promotions. The UK financial promotion regime seeks to safeguard retail investors in two main ways:

1. Generally speaking, no business or individual can communicate a financial promotion to consumers unless they are authorised by a regulator to do so (or if the content of the promotion is approved by a regulated firm). This restriction is broad in scope and includes invitations or inducements to engage in certain investment activities referred to as “controlled investments”; and
2. The FCA sets binding rules, which authorised firms must comply with when communicating or approving financial promotions (for example, any financial promotion must be fair, clear and not misleading).

The Financial Promotion Order sets out a list of “controlled investments” that are captured by the restrictions outlined above. These currently include (for example) public securities, options and futures.

The government has proposed a definition for “qualifying cryptoassets”, which will be added to the list of controlled investments. Subject to certain exclusions, “qualifying cryptoassets” will include “any cryptographically secured digital representation of value or contractual rights which is fungible and transferable”.

Whilst certain cryptoassets (e.g. security tokens) are already subject to financial promotions rules, unregulated tokens like Bitcoin and Ether are not currently subject to any similar regulation. The government’s proposed measure to expand the scope of “controlled investments” will bring most of these unregulated cryptoassets within the scope of financial promotions regulation.

The FCA has invited feedback on its proposals by 23 March 2022 and expects to confirm its final rules by summer 2022.

The consultation paper is available here.

 

[1] Financial Services and Markets Act 2000 (Financial Promotion) Order 2005/1529

Our upcoming Crypto event is on 10th Feb 2022 at 10am. Register here

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Shorter Reads

UK will tighten the regulation of cryptoassets this year

The UK government is cracking down on misleading advertising in the cryptoasset markets.

Published 26 January 2022

Associated sectors / services

Authors

The UK government is cracking down on misleading advertising in the cryptoasset markets. The move is in response to concerns that advertisements (which are often targeted at retail investors) can sometimes overstate the benefits of, without adequately warning about the risks and volatility commonly associated with, investments in this space. The government therefore plans to expand the scope of the Financial Promotion Order[1] to capture certain cryptoassets.

Regulatory safeguards have long been in place to protect consumers from misleading financial promotions. The UK financial promotion regime seeks to safeguard retail investors in two main ways:

1. Generally speaking, no business or individual can communicate a financial promotion to consumers unless they are authorised by a regulator to do so (or if the content of the promotion is approved by a regulated firm). This restriction is broad in scope and includes invitations or inducements to engage in certain investment activities referred to as “controlled investments”; and
2. The FCA sets binding rules, which authorised firms must comply with when communicating or approving financial promotions (for example, any financial promotion must be fair, clear and not misleading).

The Financial Promotion Order sets out a list of “controlled investments” that are captured by the restrictions outlined above. These currently include (for example) public securities, options and futures.

The government has proposed a definition for “qualifying cryptoassets”, which will be added to the list of controlled investments. Subject to certain exclusions, “qualifying cryptoassets” will include “any cryptographically secured digital representation of value or contractual rights which is fungible and transferable”.

Whilst certain cryptoassets (e.g. security tokens) are already subject to financial promotions rules, unregulated tokens like Bitcoin and Ether are not currently subject to any similar regulation. The government’s proposed measure to expand the scope of “controlled investments” will bring most of these unregulated cryptoassets within the scope of financial promotions regulation.

The FCA has invited feedback on its proposals by 23 March 2022 and expects to confirm its final rules by summer 2022.

The consultation paper is available here.

 

[1] Financial Services and Markets Act 2000 (Financial Promotion) Order 2005/1529

Our upcoming Crypto event is on 10th Feb 2022 at 10am. Register here

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