Crypto firms can now apply for flexibility to implement changes to comply with the UK financial promotional regime.

Back in July, we reported on the passing of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 and with it the expansion of the UK’s financial promotion regime to include cryptoassets with effect from 8 October 2023.

That deadline is now just a week or so away and the state of general readiness within the industry is unclear, many firms operating in the crypto space will thus far have only ever operated in an unregulated environment.

Certainly, the FCA has its concerns.  In its release of 7 September 2023, there is a direct quote from Lucy Castledine, Director of Consumer Investments, which pulls no punches: “’We are concerned by the failure of many overseas and unregulated crypto firms to engage with us on the new rules. Come 8 October, we will be taking action against firms illegally marketing to UK consumers.”

Nevertheless, following consultations within the industry, the 7 September release suggests that the FCA will consider giving some firms more time (through to 8 January 2024) to implement those of the changes which are more challenging from a technical perspective.  The extension will specifically apply to COBS 4.10.2AR, COBS 4.12A.15R and COBS 10.1.2R which relate to personalised risk warnings, the 24-hour ‘cooling off’ period, client categorisation and appropriateness assessments.

Firms will have to apply to the FCA in order to be granted flexibility

As of 8 October, however, UK consumers will have increased protection in that the financial promotion of qualifying cryptoassets will be subject to the “fair, clear and nor misleading rule” which can be found here at COBS 4.2.

Firms are encouraged to label their marketed products with conspicuous risk warnings and must not incentivise individuals to invest in a way that is inadvisable.

All communicators of financial promotions of qualifying cryptoassets to consumers in the UK, whether or not the communications are being made from inside or outside the UK, will need to be in compliance with the new rules.  Note that the legislation specifically excludes the following FPO exemptions from applying to financial promotions of qualifying cryptoassets: high net worth individual (A48), self-certified sophisticated investor (A50A), high net worth or sophisticated investors (A51) and sale of goods and supply of services (A61).

Under section 25 of FSMA, a person commits a criminal offence if he carries on activities in breach of the restriction in section 21 of the Act and therefore persons who are not authorised by the FCA or registered under the MLR who make financial promotions to UK consumers from 8 October 2023 that are not approved by an authorised person or which promotion is exempt under the FPO may be committing a criminal offence.

The latest FCA release on this subject ends with the ubiquitous warning, “purchasing cryptoassets remains high-risk and [you] should be prepared to lose all [your] money.”

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Humphreys Law