In February 2023, the FCA issued a significant statement urging crypto asset firms marketing to UK consumers to prepare for a new financial promotion's regime. This change would aim to ensure that crypto asset financial promotions are fair, clear and not misleading.
What is a qualifying crypto asset?
A "qualifying crypto asset" is defined as a cryptographically secured digital representation of value or contractual rights that is transferable and fungible. However, it excludes crypto assets that meet the definition of electronic money or an existing controlled investment e.g. CFDs in crypto assets. It excludes crypto assets that are only transferable to specific vendors or merchants for goods or services.
What does the new financial promotion’s regime mean for crypto assets?
PS23/6 from the FCA includes feedback from consultations into crypto assets and establishes its final policy stance. The FCA will classify crypto assets as ‘Restricted Mass Market Investments’ (RMMI). This would allow crypto assets to be mass marketed to UK consumers subject to certain restrictions, in addition to the overarching requirement that financial promotions must be fair, clear and not misleading. The introduction of financial promotions for crypto assets is set to take effect on 8 October 2023.
What are the new restrictions to how crypto assets are marketed?
1. Risk warnings
Financial promotions involving qualifying crypto assets must include a mandatory risk warning, emphasising the high-risk nature of the investment, and highlight that consumers should not expect protection from the Financial Services Compensation Scheme (FSCS) or the ombudsman service in case of issues.
2. Risk summary
The risk summaries for RMMI under COBS 4.12A have been adjusted to include qualifying crypto assets.
3. Banning incentives to invest
Promotions must not include incentives to invest, monetary or non-monetary benefits such as ‘refer to a friend’ or ‘new joiner’ bonuses.
What are the routes to communicate a crypto asset financial promotion?
There will be 4 routes to legally promoting crypto assets to consumers:
- The promotion is communicated by an authorised person.
- The promotion is made by an unauthorised person but approved by an authorised person. Legislation is currently making its way through the UK Parliament which, if made, would introduce a regulatory gateway that authorised firms will need to pass through to approve financial promotions for unauthorised persons.
- The financial promotion is communicated by a crypto asset business registered with the FCA under the UK Money Laundering Regulations.
- The financial promotion is otherwise communicated in compliance with the conditions of an exemption in the Financial Promotion Order.
How do direct offer financial promotion (DOFP) rules relate to crypto assets?
DOFP rules relate to promotions which include a manner of response or include a form by which any response may be made (i.e., a mechanism by which consumers can respond to invest their money). Please note the FCA would require all existing customers to undertake the client categorisation and appropriateness assessment if they want to continue to invest in crypto assets after 8th October 2023.
DOFP rules applying to crypto assets include:
1. 24 hours cooling off period
The FCA will apply the 24-hour cooling-off period rules of qualifying crypto assets to retail clients for first-time investors with a firm. A retail client will not be able to receive a DOFP relating to a qualifying crypto asset unless they have reconfirmed their request to proceed after waiting the 24 hours. The cooling-off period does not apply to each individual transaction, the rule only applies to first-time investors with a specific firm.
2. Risk warning pop-ups
Personalised risk warning rules now extend to qualifying crypto assets, as such the DOFP can be communicated in digital media, ensuring that potential investors are informed of the high-risk nature of their investment.
3. Client categorisation
To restrict access, DOFPs of qualifying crypto assets will be limited to restricted investors, high-net-worth investors, and certified sophisticated investors. Before a DOFP can be made, investors must fall into one of these categories and sign a declaration confirming their eligibility, which remains valid for 12 months.
4. Appropriateness assessments
Appropriateness assessments will be applied to DOFPs of qualifying crypto assets. This means firms must assess whether consumers have the necessary experience and knowledge to understand the risks associated with the specific product or service before processing an application or order for a crypto asset
How can Newgate help with your crypto asset financial promotions?
Our comprehensive suite of services offer a ready-made solution for crypto asset firms seeking efficient compliance practices. At the core of our offerings is a bespoke Crypto Asset Appropriateness Assessment and Client Categorisation System, designed to streamline regulatory compliance for your business.
Also included in our package is a user-friendly financial promotion approval form, ensuring that your financial promotions adhere to regulatory standards and gain swift approval.
We extend our expertise to assist in crafting bespoke Financial Promotions Policies tailored to your unique needs. Our financial promotion health check goes beyond the surface, encompassing a thorough review of your website to ensure full compliance with regulatory requirements. Trust us to bolster your compliance framework and help your crypto asset firm thrive in a regulated environment.
Meet our crypto compliance experts
Abdul Motobbir, Senior Compliance Consultant
Abdul is a seasoned compliance professional with a background spanning over a decade. During his career, he dedicated four years to the FCA gaining invaluable insights into regulatory practices. Moving into the consultancy space, Abdul's current role as a senior consultant allows him to showcase his leadership and knowledge in the field. His specialisation in financial promotions is a testament to his deep understanding of the intricacies of compliance with his knowledge in navigating the FCA handbook positioning him as a trusted voice in financial regulation.
Alex Hurt, Senior Compliance Consultant
Alex is an experienced senior consultant; his core expertise lies in providing specialised compliance advice to wholesale wealth and asset management firms as well as crypto asset firms across a range of regulatory frameworks. Alex holds a BSc in Banking and Finance from Cass Business School, London and has a proven record in navigating the FCA authorisation process and conducting independent audits across diverse regulatory jurisdictions.