Financial Promotion of Cryptoassets – the proposed exemption to section 21 of the Financial Services and Markets Act 2000 (“FSMA”)
On 1 February 2023, the Government announced its intention to introduce an exemption to regulation of financial promotions as set out in section 21 of FSMA for cryptoasset businesses registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”).
What the proposed exemption will mean for cryptoasset businesses
The effect of the exemption is that cryptoasset businesses registered with the FCA under the MLRs who are not otherwise authorised persons will be able to communicate their own cryptoasset financial promotions to UK consumers. The Government is also seeking to reduce the implementation period for the relevant legislation to come into force from 6 to 4 months. This adds to the existing three ways in which promotions may be communicated to consumers pursuant to section 21 of FSMA and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 i.e. if it is made by an FCA authorised person, if it is approved by an FCA authorised or if it falls within the exemptions set out in the Financial Promotion Order.
This exemption enables the 36 firms which have already satisfied the FCA that they comply with its MLR requirements to market cryptoassets to consumers in the UK to do so without having to obtain a further authorisation. However, the Government is planning to give the FCA supervision and enforcement powers over MLR registered cryptoasset businesses relying on the new exemption.
Firms marketing cryptoassets to UK consumers urged to prepare for new regime
The FCA intends to publish its final rules for cryptoasset promotions once the relevant legislation has been passed but in the meantime it is urging firms marketing cryptoassets to UK consumers to prepare for the new regime. In particular, firms must register with the FCA if they are carrying on certain cryptoasset activities under Regulations 8 and 9 of the MLRs. The MLRs require cryptoasset businesses to register with the FCA ‘if they provide, by way of business, one or more of the services described in Regulation 14A and this business is carried on in the United Kingdom’.
The FCA regards cryptoassets as high risk and has stated in its statement on 6 February 2023 that it will take robust action if firms act in breach of the financial promotions regime. The statement refers to the possibility of take downs of websites that are in breach of the regime, issuing public warnings as well as general enforcement action. The statement reminds firms that promotions made in breach of section 21 of FSMA constitute a criminal offence which is punishable by way of a maximum prison sentence of two years.
Despite the announcement of this new exemption, it is clear that the FCA are stepping up their regulation of financial promotions of cryptoassets which in tandem with the guidelines set out by the Advertising Standards Authority should work to further protect consumers from the consequences of misleading or fraudulent promotions.
Forum Chambers specialises in Fintech, Cryptocurrency and Cryptoassets
At Forum, we are at the forefront of legal developments responding to the explosion in crypto-currencies, crypto-assets and other forms of financial technology (fintech). You can learn more about our services, recent notable cases, and our team of barristers at our Fintech and Cryptocurrency page.
If you have any queries relating to the financial promotions regime or any potential disputes relating to cryptoassets, please contact David McIlroy (DMcIlroy@forumchambers.com) or Ruhi Sethi-Smith (RSethi-Smith@forumchambers.com) at Forum Chambers.
