Promotion of Cryptoassets to UK Consumers to be Regulated by the UK Financial Conduct Authority | Morrison & Foerster LLP


Unsurprisingly, the UK government has announced, in its response to the January 2022 consultation[1] (“the answer”), which will regulate the promotion of crypto assets to UK consumers. This represents a significant step towards further regulation of the UK crypto industry.

The promotion of crypto assets generally falls under the Financial Conduct Authority (“FCA”) existing financial promotions regime contained in section 21 of the Financial Services and Markets Act 2000. The Government will need to propose legislation to effect that change. In addition, the FCA is currently consulting how the financial promotions regime will apply to crypto assets, once the relevant legislation is implemented, as part of a consultation (“Query CP22/2”) on the strengthening of its financial promotion regulations for high-risk investments in general[2].

Below, we outline the key points to note about the proposals and the potential practical implications for relevant crypto-asset companies. In our view, the regime is likely to require quite significant changes to the way some retail-oriented crypto asset companies (wherever located) currently market to UK consumers and to those companies’ systems and controls.

While we do not anticipate that the rule changes will take effect for some time, UK-focused crypto asset firms should now start assessing what changes will need to be made and how they will implement and incorporate those changes, to ensure they are compliant from the start. first day of the regimen.

1. The key proposals

A. What crypto assets will be in scope?

Currently, the Government proposes that the economic promotion regime be applied to “any cryptographically secure digital representation of value or contractual rights that is fungible and transferable”.

This definition is expected to capture a significant range of crypto assets that are currently outside the UK regulatory perimeter. It will be worded in a way that excludes non-fungible tokens; schemes such as travel passes and supermarket loyalty programs; electronic money; and central bank money.

B. To whom will the rules apply?

The proposed rules are intended to apply to financial promotions (i.e. communications of invitations or inducements to engage in investment activities) in respect of crypto assets included in the scope of UK clients. They will capture foreign companies trading in the UK, as well as UK-based companies (including those not licensed by the FCA).

Any UK company intending to obtain an anti-money laundering license or registration with a foreign regulatory authority, rather than the FCA, should be aware that they will still need to comply with these rules, to the extent that they promote within of the scope. crypto assets to UK clients.

Businesses should note that the rules will have wide application, including for marketing through social media and other online means.

C. Will exemptions to the Section 21 restriction be available for in-scope crypto assets?

In general, the Government is not proposing to make any changes to the exemptions contained in the FSMA (Financial Promotion) Order 2005 for financial promotions of crypto asset transactions. However, companies targeting their marketing activities to UK retail individuals will find that the exemptions most commonly used for promotions to retail clients (the High Net Worth Individual Exemption and the Self-Certified Sophisticated Investor Exemption) will not be available to them. your cryptocurrencies. asset activities because they apply only to promotions of certain assets, including stocks and debentures. Therefore, they should consider obtaining approval for retail financial promotions from an authorized person in the UK.

D. What are the proposed rules?

Under the FCA proposals in Consultation CP22/2, crypto assets that fall within the scope of the Response will be included in a new regulatory category of “Restricted Mass Market Investments” and will be subject to strict requirements. At a high level, it is proposed that financial promotions of such crypto assets to UK retail customers should:

  1. be fair, clear and not misleading;
  2. include the following prescribed hazard warning in a prominent place:

Do not invest unless you are prepared to lose all of your invested money. This is a high risk investment. You could lose all the money you invest and it is unlikely that you will be protected if something goes wrong.”;

  1. not include any type of incentive to invest; and
  2. be approved by a relevant FCA licensed firm with competence and experience (and with relevant permits under the new “Section 21 Gateway” proposed by the Government in its June 2021 response to the consultation on amending the financial promotions “approval regime”) in the crypto asset market (unless an exemption applies)[3].

In addition, the FCA-licensed company approving the promotion will have extensive obligations, including ensuring that the promotion complies with the relevant requirements and monitoring continued compliance with the promotion.

Additionally, businesses will only be allowed to do “direct offer economic promotions” (i.e., promotions that contain an offer or invitation to enter into an agreement and specify the means by which the recipient must respond) to more sophisticated categories of investors[4]. Such promotions will only be allowed when the company:

  1. has embedded “positive frictions” in the client journey (for first-time investors only), in the form of a personalized risk warning pop-up and a 24-hour cooling-off period before the client can invest;
  2. categorizes its customers appropriately to ensure they are “restricted” (that is, they have declared that they have not invested in the previous year, and will not invest in the next year, more than 10% of their assets in Restricted Mass Market Investments), “high net worth“, or “sophisticated certificate”; and
  3. evaluates the suitability of the investment for the client before allowing him to invest. The FCA proposes to introduce guidance on strengthening the requirements for such assessment.

2. time

The proposed rules are unlikely to come into force for some time. The Government must propose legislation so that crypto assets are within the scope of the financial promotions regime, and companies must have an implementation period (approximately six months) from the date on which the legislation that modifies the regime of financial promotions comes into force. financial promotions, and the FCA has published its supplementary rules (including those proposed in Consultation CP22/2).

In the meantime, any responses to Inquiry CP22/2 must be submitted by March 23, 2022. The FCA expects to publish the final rules in the summer of 2022 (although such rules will not come into effect in relation to crypto-asset companies until March 2022). expiry of the implementation period mentioned above).

3. Practical implications

We anticipate that the proposed rules will require certain crypto asset companies to make significant changes and investments in their systems and controls. This will be particularly the case where the company is not yet authorized by the FCA.

In practice, companies must, among other things:

  1. Identify which promotions will be within the scope of the rules;
  2. Review and revise its policies and procedures related to marketing;
  3. Establish how they will categorize clients and assess suitability;
  4. Ensuring that there is sufficient internal governance in relation to marketing activities;
  5. Embed necessary cultural changes to ensure staff understand the need to protect the interests of retail customers and ensure communications are fair, clear and not misleading;
  6. Consider adding staff with the right experience to your Compliance role; and
  7. Identify (where the company is not authorized) an FCA authorized company that is competent to approve financial promotions of crypto assets.

Companies should not underestimate the time it will take to identify, implement and incorporate the necessary changes. They need to start planning and getting the right advice now to ensure they are in compliance when the new rules come into effect.

We expect the FCA to take strong action to address failures to comply with the rules and take enforcement action against companies that consistently or flagrantly fail to comply. Rule violations could also expose businesses to civil lawsuits from retail customers. Additionally, unauthorized businesses should be aware that failure to ensure that promotions are approved by an authorized business could, under certain circumstances, constitute a criminal offense and render relevant agreements with their customers unenforceable.


[1] SM’s Treasury “Crypto Asset Promotions: Inquiry Response”.

[2] FCA CP22/2 (“Strengthen our financial promotion rules for high-risk investments, including crypto assets”).

[3] Registration with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Payer Information) Regulations 2017 will be insufficient. The approving firm must be authorized under FSMA 2000.

[4] Those investors who are “restricted”; “high net worth“, or “sophisticated certificate”. Businesses should note that the Government is consulting on raising the monetary thresholds used to identify “high net worth investors”.

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