Crypto Firms: Are you ready to comply with the FCA Financial Promotions Regime?
On 4th July the FCA confirmed that the legislation had been passed to bring qualifying cryptoassets within scope of the financial promotion regime. This means any firm marketing crypto in the UK has until October 2023 to ensure they have a route to market that is compliant.
What are the routes to market?
If you want to carry on marketing crypto to UK customers there are four options:
You are a regulated Firm and can approve your own financial promotions.
You are a cryptoasset business that has been registered with FCA under the MLRs and have set up a framework to approve your own promotions.
You get an authorised firm to approve the promotion for you.
The promotion meets an exemption in in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“the Financial Promotion Order).
Simply put, to issue a promotion it must be communicated or approved by an authorised firm or a crypto registered firm or rely on an exemption.
This causes a problem for cryptoasset firms marketing into the UK firstly because a number have yet to apply or receive registered status and secondly, there is a distinct lack of authorised firms who are willing and able to take on the approval of cryptoasset promotions.
What if a Firm gets it wrong?
Promotions that are not made using one of these routes will be in breach of section 21 of the Financial Services and Markets Act 2000 (FSMA), which is a criminal offence punishable by up to 2 years imprisonment. FCA have a well-resourced financial promotions team who will be keen to ensure that published material is either exempt or approved; and if approved meets expectations.
What is a financial promotion?
Crypto firms will need to be clear on what constitutes a financial promotion. This isn’t always easy to conclude on. We have spoken to a number of firms who are not clear on this point. For example the FCA take the view that any form of communication including paid for Google ads and social media is capable of being a financial promotion depending on whether it includes an invitation or inducement to engage in financial activity.
Use of online media platforms:
The use of online media platforms to promote cryptoassets will be key area of focus for FCA as this is a common marketing method. This type of promotion must still comply with the relevant rules on a standalone basis regardless of character limits or constraints on certain social media channels (e.g., Twitter or Instagram). For example, when using influencers firms should have guidance notes that include a clear list of dos and don’ts.
Fair, clear and not misleading:
Many authorised firms, whether new or existing, still struggle to grasp some of the basic principles relating to financial promotions such as the requirement to be fair, clear and not misleading, and these are firms who are already operating in the FCA’s regulatory world. It is easy to see how cryptoasset firms with their technology focus will find it difficult to develop the right culture and strategy for the promotion of high-risk assets to retail customers and put in place an effective control framework.
The FCA expects to apply a consistent approach to cryptoassets and treat them like any other high-risk investment. This includes using specific risk warnings, positive frictions (e.g. 24 hr cooling off period) in customer journeys and ensuring the overreaching requirement of making sure promotions are clear, fair and not misleading. Crypto asset firms will need to make sure they have a detailed understanding of not only the specific rules, but also the wider requirements and how the FCA approaches the regulatory of financial promotions.
Systems and Controls:
Firms must have robust systems and controls in place for the approval and ongoing monitoring of financial promotions. In addition, firms must also have adequate oversight procedures for the initial and ongoing due diligence and monitoring of third parties that issue promotions. This includes quality MI and review of any feedback highlighted in customer complaints.
What you need to do:
Make sure you have appropriate permissions to approve a promotion before promoting in the UK.
Review all your current financial promotions for compliance across all media platforms.
Review your financial promotion systems and controls.
How we can help:
There is now even greater value in firms being registered with the FCA under the MLRs for Cryptoasset Registration.
We have unique insights into this process and are currently supporting a number of firms with their Cryptoasset Registration applications to maximise their chances of success – click here to find out more.
We are already advising clients across a number of sectors on how to ensure that their financial promotions meet the FCA Financial Promotions Regime both current and emerging. We recognise that in the crypto market, online and digital presence is fundamental to a crypto firms’ business strategy. Our experienced consultants have valuable insight into how to achieve compliance with these new rules in a manner that is proportionate and effective.
Our regulatory experience when it comes to cryptoasset compliance is second to none – whether it’s your AML obligations or financial promotions, our experience and approach sets us apart. Get in touch to understand how and why.
