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New Regulatory Landscape: Understanding FCA's Final Rules on Cryptoasset Marketing in the UK

Writer's picture: Law AstronautLaw Astronaut

New regulatory pathways are emerging, with the UK's Financial Conduct Authority (FCA) spearheading novel policies that align with this dynamic environment. On June 8, 2023, the FCA released a pioneering policy statement that improves the rules of engagement for financial promotion involving cryptoassets.


Key Stakeholders: Who is Impacted?


The implications of this new policy radiate across all tiers of the financial industry, affecting everyone from mainstream financial service providers to burgeoning cryptoasset businesses. Any entity communicating financial promotions to UK consumers, particularly in the crypto space, must be mindful of these new directives.


Restricted Mass Market Investments: Categorization of Cryptoassets


In a significant stride, the FCA’s policy classifies cryptoassets as 'Restricted Mass Market Investments.' The FCA's new policy statement underscores the importance of consumer protection with a set of regulations:

  • Risk Warnings: Firms must now provide clear warnings about the risks associated with investing in cryptoassets.

  • Cooling-off Period: Also known as "positive frictions," this directive is designed to prevent rash decision-making by potential investors.

  • Incentives Ban: The FCA takes a stern stand against investment incentives, aiming to reduce misjudged decisions driven by seemingly attractive benefits.

  • Client Categorisation: This requirement helps firms to make more appropriate and risk-adjusted proposals based on the clients' understanding of, and capacity to withstand, crypto investment risks.


Appropriateness Assessments: Evaluating Consumer Readiness for Crypto Investments


The FCA takes a prudent stance towards consumer protection by introducing the necessity for 'appropriateness assessments' and expects firms to cover certain areas during this assessment:

  • Understanding the basic features of cryptoassets.

  • Acknowledging the absence of certain protections, like the Financial Services Compensation Scheme (FSCS) or the Ombudsman service.

  • Comprehending the volatile nature of cryptoasset investments and the potential for total loss.

Legal Ramifications: Consequences of Non-compliance with the New Rules


The FCA's policy statement underscores that rules are not just guidelines but also mandates with severe repercussions for non-compliance. From October 8, 2023, any firm that unlawfully communicates financial promotions to UK consumers is committing a criminal offense. Here are the stringent penalties that come into play:

  • Infliction of an unlimited fine.

  • Possibility of two-year imprisonment.

Notably, cryptoasset businesses registered under the Money Laundering Regulations (MLRs) with the FCA can communicate their financial promotions, relying on the exemption in Article 73ZA of the Financial Promotion Order. This exemption saves them from either having to be authorized under Part 4A FSMA or having their financial promotions approved by a person authorized under Part 4A.


The Guidance Consultation: Ensuring Fair, Clear and Non-misleading Promotions


In addition to the policy statement, the FCA has published a guidance consultation (GC 23/1). The aim is to ensure that financial promotions about cryptoassets are fair, unambiguous, and not designed to mislead.


Factors Influencing Assessment of Promotional Compliance


The consultation document covers several factors for evaluating the fairness and clarity of promotions. It emphasizes how firms must communicate the risks of investing in cryptoassets straightforwardly.


Specific Rules for Complex Cryptoassets


For complex cryptoassets, additional rules have been proposed. These additional regulations strive for greater transparency, attempting to eradicate any promotional ambiguity that could mislead potential investors.


The FCA’s Vision: Balancing Consumer Protection and Innovation


The FCA views these rules as a delicate balancing act between protecting consumers and fostering innovation. Despite some stakeholders voicing concerns that these regulations might be either too restrictive or too lenient, the FCA believes the rules strike a fair balance. The aim is to allow for potentially beneficial innovation, while ensuring that consumer interests are safeguarded.


Open Consultation: An Invitation to Shape the Cryptoasset Future


The FCA's guidance consultation offers a golden opportunity for stakeholders to have their voices heard. They can share their insights and concerns by August 10, 2023, effectively contributing to the shaping of cryptoasset regulation in the UK.


DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be AI-generated. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

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