HM Treasury's latest consultation on bringing cryptoasset promotion within the scope of the financial promotion regime seeks to find the delicate balance of protecting consumers without stifling innovation.
The proposed changes would add fungible and transferable cryptoassets to the list of controlled investments under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (FPO) and will require amendments to some of the existing controlled activities.
The deadline to respond to the consultation is 25 October 2020.
In their October 2018 report, the Cryptoassets Taskforce's (comprising of the Bank of England, FCA and HM Tresaury) identified three areas of risk as a priority for the authorities to take action:
- consumer protection;
- market integrity; and
- financial crime.
Following the publication of the report, HM Treasury committed to consulting on whether the FPO should be extended to cryptoassets that have comparable features to specified investments but currently fall outside its perimeter.
The new consultation aims to enhance consumer protection by expanding the perimeter of the financial promotion regime to include cryptoassets whilst the government considers how to respond to the broader challenges of cryptoasset regulation.
However, the government is wary of of stifling innovation in the cryptoasset sector without a proportionate benefit to consumer protection and has designed the proposed policy changes accordingly.
The government proposes to include certain unregulated cryptoassets in the list of controlled investments and amend a number of the current controlled activities. This will require the FPO to be amended.
The unregulated cryptoassets to be covered by the FPO as controlled investments (the "qualifying cryptoassets") will include only those that are both fungible and transferable.
The government considers that the controlled activities most relevant to cryptoassets are:
- dealing in securities and contractually based investments
- arranging deals in investments
- managing investments
- advising on investments
- agreeing to carry on specified kinds of activity.
The government will therefore amend these controlled activities so that they incorporate activities in relation to the buying, selling, subscribing for or underwriting of qualifying cryptoassets.
The government expects exemptions for qualifying cryptoassets to be generally consistent with the approach taken to exemptions for other controlled investments.
However, the government is also proposing to add the following exemption to the FPO:
“The financial promotion restriction does not apply to any communication which merely states that a person is willing to accept or to offer qualifying cryptoassets in consideration for the supply of goods or services.”
This will ensure that vendors merely offering to accept cryptoassets in exchange for their goods or services, and buyers merely offering cryptoassets to pay for goods or services, in the same manner as they would accept pound sterling payments, are not captured under the regime.
HM Treasury is seeking stakeholders views on 16 questions, including an impact assessment. You can respond here until 25 October 2020.
If the government proceeds with the FPO amendments, there will be no transitional period before they come into force.