Impact of FCA’s new crypto promotion rules may extend further than we realise
by Charles Maurice, Partner at Stevens & Bolton LLP
In case you missed it, on October 8 the UK financial promotion regime was extended to cover the promotion of qualifying cryptoassets – an asset class that is broadly expected to include most cryptocurrencies and other fungible tokens.
It is a pretty big change by any measure. Previously the rules governing financial promotions in the crypto space were largely a mix of existing advertising and consumer law, in many cases offering limited protection to potentially vulnerable investors.
Now instead, if a firm wishes to market investment opportunities relating to certain types of crypto asset, then it must do so in accordance with the rules on financial promotions or it will be committing a criminal offence.
Broadly, those rules govern who may make a financial promotion, how promotions may be made and the timing of them, as well as the content allowed to be used to induce associated investments.
Complying with the financial promotion rules may prove something of a challenge to some firms, and by the time the new regime was 24 hours old the FCA had already raised 146 alerts around potential non-compliance.
A quick scan of those alerts immediately reveals some trends: the vast majority of firms highlighted by the FCA appear to be providing or promoting financial services or products without the FCA’s permission.
If that sounds alarming then it is probably meant to – the FCA takes a risk-based approach, and the new regime is intended by the FCA to address three core commitments in its 2023/24 Business Plan: reduce and prevent serious harm, set and test higher standards and promote competition and positive change.
In summary: market crypto without permission and the powers that be will not be impressed.
Getting used to the changes
As with most changes in the law there has been a period of time for firms to adjust to the new rules – in this case four months – and perhaps it is the nature of compliance itself that is causing (or likely to cause) the issue.
In broad terms, unless an exemption applies (the promotion is aimed at an investment professional, for example), firms need either to be authorised by the FCA in order to promote qualifying crypto assets or have their financial promotions approved by another firm that is itself authorised by the FCA.
Crypto firms that are registered with the FCA under the existing money laundering rules (but which do not otherwise have FCA permission) may also be able to promote non-real time crypto opportunities. Given the timescales and process involved in gaining FCA authorisation, as well as the well-publicised challenges crypto firms have had gaining approval from the FCA under the money laundering rules, perhaps the path of least resistance for most firms is to have another authorised firm approve the content of the promotion.
However, as Binance discovered last week, it seems even this may come at a cost beyond just the financial outlay associated with engaging or partnering with an authorised firm for approval purposes.
Binance recently announced it had partnered with Rebuilding Society for its UK compliance needs, only for the FCA to use its powers under FSMA to restrict Rebuilding Society from approving financial promotions relating to crypto assets and requiring it to withdraw its approvals of any existing financial promotions. Justified or not, this leaves a bit of a mess for Binance to sort out.
As in many situations where existing law is subsequently applied to new concepts or technology, it feels too like there may be some broader (though possibly not unintended) consequences in the short and medium terms.
The FCA has issued something of a call to arms to those organisations that it terms as intermediaries who play a critical role in enabling crypto firms to target UK consumers, noting that it expects these organisations to play their part in ensuring that illegal financial promotions are not communicated to UK consumers by unregistered cryptoasset firms.
So, then, the impact of the new rules may extend further than might initially seem to be the case.
Organisations looking to partner with crypto firms – perhaps in a sponsorship or marketing context – may just want to look a little more carefully at these types of partnership and the legal implications of any associated copy.