A guide to the FCA’s new cryptoassets promotion rules
The Financial Conduct Authority (FCA) recently unveiled new rules and guidelines surrounding the financial promotion regime for cryptoassets. With this move, the FCA aims to provide a regulatory framework to address potential risk factors associated with cryptoassets while still fostering innovation. These changes will become effective from 8 October 2023.
To which assets do the new marketing rules apply?
The new rules apply to ‘qualifying cryptoassets’. The term ‘qualifying cryptoassets’ broadly refers to any cryptographically secured, transferable, and fungible digital representation of value or contractual rights. This includes exchange tokens like Bitcoin. However, assets such as Non-Fungible Tokens (NFTs), electronic money, fiat currency, and digitally issued fiat currency are not deemed to be qualifying cryptoassets.
What options do unregulated businesses have?
Unregulated businesses wishing to market crypto assets must implement the necessary changes to ensure compliance before 8 October 2023. Unregulated businesses have various options, including:
- becoming an authorised firm under the Financial Services and Markets Act 2000 (FSMA);
- register under the Money Laundering Regulation 2017 (MLR), although this is a demanding process with high FCA expectations;
- have their promotions approved by an authorised firm; and
- comply with the conditions of the Financial Promotion Order (FPO) exemptions.
Who can promote cryptoassets and how can they do so?
Below, we have set out the rules applicable to FSMA authorised persons, firms registered under the Money Laundering Regulation 2017, and unauthorised persons.
Can promotions be made by this group? Yes, FSMA-authorised persons can make promotions as Restricted Mass Market Investments (RMMIs), subject to certain restrictions for direct offer financial promotions (DOFPs).
Are there any restrictions? Yes, DOFPs are restricted to restricted investors (subject to a 10% high-risk investment limit), high-net-worth investors, and certified sophisticated investors.
Will the FCA rules apply? Yes, FSMA-authorised persons must comply with the new FCA rules, which include risk warnings, a ban on incentives to invest, a 24-hour cooling-off period for first-time investors, appropriateness assessments, and client classification.
Can they approve financial promotions for other businesses? Yes, FSMA-authorised firms are expected to notify the FCA if they intend to approve cryptoasset financial promotions for other businesses.
Can promotions be made by this group? Yes, MLR-registered persons can also make RMMI promotions, but only for their own or their registered person’s qualifying cryptoassets and not other controlled investments.
Are there any restrictions? Yes, the restrictions are the same as for FSMA-authorised persons.
Will the FCA rules apply? Yes, MLR-registered persons must also comply with the FCA rules, which are the same as those for FSMA authorised persons.
Can they approve financial promotions for other businesses? No, MLR-registered firms cannot approve financial promotions for other businesses.
Can promotions be made by this group? Yes, but only if the promotion is approved by an authorised person or if they rely on FPO exemptions. However, they cannot use certain exemptions for cryptoasset promotions.
Are there any restrictions? Yes, the restrictions depend on whether the promotion is approved by an authorised person or there is reliance on FPO exemptions.
Will the FCA rules apply? No, but the overarching requirement is that all financial promotions must be fair, clear, and not misleading.
Can they approve financial promotions for other businesses? No, unauthorised persons cannot approve financial promotions for other businesses.
These changes will become effective from 8 October 2023, and no further modifications are anticipated. In the meantime, the FCA is requesting feedback on the guidance consultation (GC23/1) for cryptoasset financial promotions by 10 August 2023 and final guidance expected by Autumn 2023.
Our specialist team is here to assist with any queries or concerns you may have about the new financial promotions regime and other cryptoasset regulatory matters. Please contact Ludo Lugnani for further assistance.