If you are a user of Transport For London ("TFL"), undoubtedly you will have noticed the plethora of cryptoasset advertisements lining tube platforms or attached to the side of red buses. Over the last two years, cryptoassets have been the subject of more TFL adverts than any other product, with 39,560 crypto adverts being displayed in 6 months at the peak. Given that crypto firms have been largely unregulated in the UK up until now, concerns have been raised about the potential for financial harm when dealing in such high risk investments.
In order to address these misgivings, the Government published a consultation response in January 2022 setting out its intention to legislate to bring certain cryptoassets within the remit of the Financial Conduct Authority (the "FCA"). This consultation response noted there was widespread agreement that misleading advertising and a lack of suitable information meant that there were consumer risks present in the cryptoasset market, and that intervention was required.
Who will be affected?
On the first of this month, a policy statement was published confirming that any cryptoasset firms, including those based abroad, which market to UK consumers would be subject to the new UK financial promotions regime.
The cryptoassets to be brought under scope by the new regime are digital assets, such as Bitcoin, which are fungible and transferable (subject to exclusions) but not electronic money or currency issued by a central bank or public authority.
What will the changes be?
The new regime will offer 4 routes to firms communicating cryptoasset promotions to UK consumers:
1) the promotion is communicated by an FCA authorised person;
2) the promotion is made by an unauthorised person but approved by an FCA authorised person;
3) the promotion is communicated by a cryptoasset business registered under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the "MLRs") with the FCA; or
4) the promotion otherwise complies with the conditions of an exemption in the Financial Promotion Order.
When will the changes come into effect?
The changes are subject to the relevant legislation being passed in Parliament but the FCA expects to take a consistent approach to cyrptoassets to that taken in these new rules from 01 February 2023. On the passing of the relevant legislation, the Government intends to grant a 4 month implementation period for the new regime.
What are the implications of failing to adhere to these changes?
The consequences are severe. Promotions that are not made using one of these routes will be in breach of section 21 of the Financial Services and Markets Act 2000 (FSMA), which is a criminal offence punishable by up to 2 years imprisonment.
I market cryptoassets to UK consumers, what do I need to do?
The FCA is urging cryptoasset businesses to start preparing for this regime now. Acting now will help ensure you can continue to legally promote to UK consumers.
We are here to help navigate these changes and can assist you in deciding between and utilising any of the four options listed above:
1) we can guide you through the process of becoming FCA authorised;
2) we can put you in touch with our large network of authorised persons and offer guidance on the new financial promotions regime currently being legislated;
3) we can direct you in applying for registration under the MLRs, which is an exemption specifically carved out for cryptoasset firms; and
4) we can advise you on the exemptions available under the Financial Promotion Order.
We are also available to answer any ad hoc queries you may have, please contact Alexander Wood (Alexander.Wood@howardkennedy.com) or Marc Proudfoot (Marc.Proudfoot@howardkennedy.com).
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