Crypto-marketing – 4 months to comply with new UK rules

On 8 June 2023, the FCA published PS23/6 which sets out near final Handbook rules on the new financial promotions regime for cryptoassets. The new rules apply from 8 October 2023. We set out the key takeaways.

Key impacts

Businesses wishing to continue marketing cryptoassets must act now as they only have 4 months to prepare before the rules start to apply. Essentially unregulated firms will need to either:

1. Arrange for their promotions to be approved by an authorised firm but approving will become more difficult for firms in the future and also query how many authorised firms are willing to approve marketing for crypto firms; or
2. Rely on marketing exemptions but these are not helpful for retail client base; or
3. Become registered under the Money Laundering Regulation 2017 (MLR) but we know that the FCA has high demands for applicants and many have failed to convince the regulator; or
4. Become an authorised firm – This is coming down the line anyway given the new proposed regimes for stablecoins and unbacked cryptoassets. Authorisation will mean compliance with the financial promotion rules outlined below. The burden of compliance with these, as well as with the requirements for an authorised firm, should not be underestimated.

Key takeaways for the new FCA marketing regime for crypto:

• Broad scope of assets caught: Businesses must first consider whether their products fall within scope. The definition of qualifying cryptoassets is broad and will capture cryptoassets such as Bitcoin (but note that NFTs are not within scope of the regime). See below.
• Bringing in line with approach to high-risk investments: As expected, the FCA is taking a consistent approach to cryptoassets to that taken for other high-risk investments. Qualifying cryptoassets will be categorised as Restricted Mass Market Investments (RMMIs).
• Nuanced application: How the financial promotion regime applies will be dependent on whether the business in question is already authorised, MLR-registered or unauthorised. The table below provides more information on the rules which apply to each.
• Onerous compliance requirements: Complying with the FCA financial promotion rules will require significant changes to business practices including changes to the audience to which promotions are made, inclusion of risk warnings, addition of positive frictions, requirement to undertake client categorisation and appropriateness assessments, review of any incentives to invest which will be banned under the FCA rules.
• FCA expects more MLR registered firms: The FCA expects more firms to apply for registration under the MLR as a result of the cryptoassets financial promotion regime. The government has provided a bespoke financial promotion exemption which will enable MLR registered firms to communicate their own cryptoasset financial promotions to UK consumers (see our briefing here). MLR registered firms should note that this is only a temporary solution. The bespoke exemption will be removed when the wider crypto regulatory regime eventually comes into force (see our briefing here). At that point, unless another exemption can be found, only authorised firms will be able to market cryptoassets.
• 'Approver' firms: The Financial Services and Markets Bill, when in force, will introduce a regulatory gateway that authorised firms will need to pass through to approve financial promotions for unauthorised persons (see our briefing here). In the meantime, the FCA expects authorised firms considering approving cryptoassets financial promotions to notify the FCA of their intention to do so in line with Principle 11 and SUP 15.

Cryptoasset Financial Promotion Regime - Overview

What is the scope of the crypto financial promotion regime?

The financial promotion 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.

Broadly, promotions to buy or sell qualifying cryptoassets or to engage in certain investment services relating to qualifying cryptoassets will, from 8 October 2023, be within scope of the UK financial promotion regime. The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (Crypto Promotion Amendment Order) expands the scope of the financial promotion restriction in s.21 of the Financial Services and Markets Act 2000 (FSMA) by amending the FSMA (Financial Promotion) Order 2005 (FPO) to include financial promotions in respect of certain cryptoassets.

What are 'qualifying cryptoassets'?

'Qualifying cryptoassets' (defined in paragraph 26F of Schedule 1 FPO - see article 9 of the Crypto Promotion Amendment Order) are, broadly speaking:

• any cryptographically secured digital representation of value or contractual rights that is transferable and fungible
• includes exchange tokens such as Bitcoin

The following would not be qualifying cryptoassets:

• Existing controlled investments (eg security tokens, units in collective investment schemes, derivatives)
• NFTs
• Electronic money
• Fiat currency
• Digitally issued fiat currency
• Cryptoassets subject to specific limitations (e.g. limited network)

Financial promotion rules for different businesses

Next steps

The new regime will apply from 8 October 2023. These rules can be considered near final, with no further changes expected to what has been published (subject to exceptional circumstances).

In the meantime, the FCA has published a guidance consultation (GC23/1) for cryptoasset financial promotions, with responses to the consultation requested by 10 August 2023. The FCA expects to publish final guidance in Autumn 2023.

The FCA is also consulting on additional guidance and amendments to the scope of the ban on incentives to invest which will be relevant to promotions for cryptoassets. Responses to this consultation should be submitted by 10 July 2023.