In January 2022, the UK government published a consultation response setting out its intention to legislate to bring certain promotions of ‘qualifying cryptoassets’ within the Financial Conduct Authority’s (FCA) remit. The policy statement was updated in 1 February 2023. The financial promotions regime will apply to all firms marketing cryptoassets to UK consumers regardless of whether the firm is based overseas or what technology is used to make the promotion.
What is a cryptoasset?
A ‘qualifying cryptoasset’ is defined as any cryptographically secured digital representation of value or contractual rights that is transferable and fungible, but does not include cryptoassets which meet the definition of electronic money or an existing controlled investment.
Please note, we refer to ‘qualifying cryptoassets’ as ‘cryptoassets’ for the rest of this document.
Who is affected by the changes?
- consumers investing, or who are considering investing, in cryptoassets
- cryptoasset businesses registered with the FCA
- cryptoasset business considering, or in the process of, registering with the FCA
- overseas cryptoasset firms marketing, or considering marketing, to UK consumers
- authorised firms considering communicating or approving cryptoasset financial promotions
- trade bodies for the cryptoasset sector
- other persons involved in communicating cryptoasset financial promotions to UK consumers
Who do the changes apply to?
- Any firm that currently promotes cryptoassets to UK consumers.
- FCA registered cryptoasset firms under the money laundering regulations.
- FCA authorised firms intending to approve a cryptoasset promotion on behalf of another (commonly known as s21 approvers).
Should firms not comply with the new regime to come into play on 8 October 2023, they are at risk of committing a criminal offence punishable by an unlimited fine and/or up to 2 years imprisonment. This deadline follows shortly after the deadline for UK cryptoasset firms to comply with the Travel Rule (1 September 2023). The Travel Rule requires UK based cryptoasset businesses to collect, verify and share specific transaction information relating to transfers of cryptoassets.
What types of communication apply?
The definition of a financial promotion is broad and covers a range of communications including websites, blog posts, mobile phone apps and many other types. The scope is wide and covers all technical and traditional ways of communication.
Having an effect in the UK:
The regime applies to financial promotions that are capable of having effect in the UK. Many firms operate internationally and this can pose challenges for UK firms ensuring that its associated entities in the global group structure do not breach UK regulations by promoting to UK consumers.
From 8 October 2023, the government legislated that there will be four routes cryptoasset firms can take when lawfully communicating cryptoasset promotions:
1) An authorised person communicates the promotion.
2) An authorised person approves the promotion.
3) A crypto firm registered under the Money Laundering Regulations (MLR) communicates the promotion.
4) The promotion otherwise complies with the conditions of an exemption in the Financial Promotion Order.
Should firms intend to continue marketing to UK consumers once the regime comes into force, they must consider how they will lawfully communicate their promotions and how they will meet the relevant requirements of that route.
The FCA have indicated they will take robust action against firms breaching the new requirements and can include, but is not limited to, websites being taken down, restrictions imposed on firms and enforcement action.
We strongly suggest any firms obtaining the relevant advice as part of their preparations whether the firm is UK or overseas based, get in touch with our crypto/commercial team for a review of their business and promotional material to ensure they are compliant. Please call us on 020 3588 3500 or email us at coco@saracenssolicitors.co.uk.
