UK Authorities To Slam Stable Door On Crypto Promotions In October.

You may have noticed that the UK government has been somewhat distracted (since, oh, 2016), but the FCA has finally received the legislative support to publish its near-final financial promotion rules for cryptoassets and related guidance. These follow final rules for other high-risk investments(i.e. excluding cryptoassets) published in August 2022. The new rules classify currently unregulated cryptoassets as ‘Restricted Mass Market Investments’ and restrict how they can be marketed to UK consumers. The rules take effect from 8 October 2023, with a 4 month transition period thereafter (any comments on the related Guidance should be submitted by 10 August). The FCA promises "robust" enforcement action against firms in breach, such as take down requests, adding firms to the FCA's warning list of unauthorised firms and criminal prosecutions that could result in an unlimited fine and/or 2 years in jail... 

The rules apply to ‘qualifying cryptoassets’ - basically cryptographically secured digital representations of value or contractual rights that are transferable and fungible, but does not include cryptoassets that are regulated as electronic money or an existing 'controlled investment' for financial promotions purposes (since the promotion of those is already regulated).

This means that 'invitations' or 'inducements' to engage in the following activities in relation to the newly qualifying cryptoassets will be caught by the rules: 

• dealing 

• arranging deals 

• managing 

• advising 

• agreeing to carry on specified kinds of activity in relation to these qualifying cryptoassets.

However, cryptoasset exchanges and custodian wallet providers who are registered with the FCA under money laundering regulations and not otherwise authorised firms will be able to communicate their own cryptoasset financial promotions to UK consumers; while firms that are only authorised under the Electronic Money Regulations, or the Payment Services Regulations will not be able to communicate or approve cryptoasset financial promotions at all under the law as it stands.

The result is that there will only be 4 routes for legally promoting cryptoassets to UK consumers: 

• by an authorised person; 

• by an unauthorised person with the approval of an authorised person (a process that will get tougher when authorised firms have to pass through a new regulatory 'gateway' before they can approve financial promotions for unauthorised persons);

• by a cryptoasset business registered with the FCA for money laundering purposes;

• under a specific exemption (but exemptions for 'high net worth' or 'self-certified sophisticated' investors or for the sale of goods or supply of services are not available). 

This post only summarises some of the rules and does not constitute legal advice. If you need assistance with any of this, please let me know.