Ocorian, the specialist global provider of regulatory and compliance, fund, corporate and fiduciary services, warns of impending crypto asset regulatory tsunami as FCA's new financial promotion regime looms.
In a groundbreaking development set to send shockwaves through the cryptocurrency industry, the Financial Conduct Authority (FCA) has issued a stark warning to crypto asset firms operating in the UK. The FCA's new financial promotion regime, which took effect on October 8, 2023, brings unprecedented restrictions and requirements for qualifying crypto asset holders.
Crypto asset financial promotions to be fair, clear, devoid of misleading information
A "qualifying crypto asset" is now defined as a cryptographically secured digital representation of value or contractual rights that is transferable and fungible, excluding assets classified as electronic money or controlled investments such as CFDs. This regulatory overhaul aims to ensure that crypto asset financial promotions are fair, clear, and devoid of any misleading information.
Abdul Motobbir, Senior Compliance Consultant at Ocorian, voiced his concerns, saying: "This seismic shift in regulations will reshape the crypto asset landscape. Market participants must be prepared for a wave of stringent requirements, from mandatory risk warnings to prohibitions on incentives to invest. Ignoring these changes is not an option."
What are the key changes after the FCA's new financial promotion regime?
1. Risk warnings: all financial promotions involving qualifying crypto assets must prominently display a mandatory risk warning, emphasising the high-risk nature of these investments and the absence of protection from the Financial Services Compensation Scheme (FSCS) or the ombudsman service in case of issues.
2. Risk summary: risk summaries for Restricted Mass Market Investments (RMMI) now include qualifying crypto assets under COBS 4.12A.
3. Banning incentives: promotions are strictly prohibited from including incentives to invest, whether monetary or non-monetary.
The FCA has outlined four routes to legally promote crypto assets to consumers, which include promotions communicated by an authorised person, communication approved by an authorised person for promotions made by an unauthorised person, promotion communicated via a FCA registered crypto asset firm or promotion is exempt under the Financial Promotion Order (FPO).
Abdul Motobbir, Senior Compliance Consultant at Ocorian, added: “Any promotion made outside of this is a criminal offence punishable by up to two years imprisonment, the imposition of a fine, or both. In fact, immediately after the introduction of the new fin proms, on 9 October, the FCA issued 146 alerts about crypto asset promotions. “
Alex Hurt, Senior Compliance Consultant at Ocorian, further emphasised the sweeping changes, stating: "The Direct Offer Financial Promotion (DOFP) rules will also significantly impact the crypto asset landscape. Personalised risk warnings, the 24-hour cooling-off period, risk summary pop-ups, client categorisation, and appropriateness assessments will all be prerequisites for engaging with crypto assets."
He added, "It's crucial for investors to understand the risks associated with crypto assets fully. The DOFP rules will require investors to fall into specific categories and demonstrate their understanding of the risks through an appropriateness test before proceeding with crypto asset transactions."
Navigate the complex regulatory landscape with Ocorian
Ocorian is ready to assist crypto asset firms in navigating this complex regulatory landscape with a suite of comprehensive services. Their tailored Crypto Asset Appropriateness Assessment and Client Categorisation System are designed to ensure efficient compliance practices, while their financial promotion approval form guarantees regulatory compliance and swift approval.
Moreover, Ocorian offers assistance in crafting bespoke Financial Promotions Policies to meet unique needs, ensuring full compliance with regulatory requirements.
Prepare for the crypto asset regulatory tsunami and ensure your firm remains compliant by partnering with Ocorian. Contact Ocorian's crypto compliance experts today to fortify your compliance framework.