FCA issues final warning to companies promoting cryptoassets
The upcoming financial promotions regime takes effect from 8 October 2023 and FCA had stark words for the crypto industry in their letter of 21 September 2023.
This regime is important for reducing and preventing harm to consumers from investing into cryptoassets that do not match their risk appetite. It’s up to consumers to decide whether they buy crypto, but they need to do so on a basis that is fair and accurate which helps them make effective investment decisions.
The four key themes of the letter with some clear actions for firms are set out below:
1. Poor engagement from unregistered firms promoting to UK consumers
Many foreign firms have refused to engage with FCA despite the regulator’s best efforts. 24 Firms responded to the survey which was distributed to a total of 150 firms. A 16% response rate is a cause for a concern which implies the industry is not ready to comply with the new regime.
If you are an unregistered firm promoting to UK consumers, you need to make sure your promotions are being approved by a regulated authorised person or are within the scope of certain narrow exemptions in the Financial Promotion Order. It’s a unique situation for somebody else to accept the risk that your financial promotions are compliant, and it will be interesting to see how the industry responds.
2. FCA is not a toothless tiger
The final warning from the regulator could not be clearer in setting out the consequences of not complying with the new regime. If firms are illegally promoting to UK consumers it will be a criminal offence punishable by up to 2 years imprisonment, an unlimited fine, or both. The FCA is standing firm, where access to their usual enforcement toolkit can be applied in addition to, court injunction, criminal prosecution and use of FSMA Section 30 unenforceable contract provisions.
Firms need to assess their marketing and approval processes for cryptoassets to make sure they are watertight, and nothing falls through the cracks. The FCA is laser focussed on the industry so now is not the time to be complacent with your financial promotions controls framework.
3. Unregistered firms and their network
Simply put, unregistered cryptoasset firms do not operate in isolation. They are supported and facilitated by a host of intermediaries who play a critical role in enabling these firms to target UK consumers. Where social media platforms or payments firms are involved, FCA flags the risk that this involves payments which could be money laundering offences under POCA.
Firms must carefully consider their arrangements with unregistered cryptoasset firms and ensure that they are not engaged in, supporting or facilitating money laundering. Firms also need to apply the new standards in the Online Safety Bill (OSB) which was passed on 19 September 2023 in its final Parliamentary debate and is now ready to become law. It aims to mitigate the risks to consumers posed by the presence and dissemination of illegal content on sites including illegal financial promotions.
4. Complying with the Financial Promotions Regime
After 8 October 2023, Firms will be measured by the new standards set out in the Financial Promotions regime and must stop promoting illegal financial promotions to UK customers. There will not be a grace period and Firms need to start following the key changes now, so this starts to become business as usual.
To get ahead and be ready for 8 October, assess yourself against the good and poor practice areas provided by FCA so that you are informed on where your gaps are and what action you need to take to ensure you Firm doesn’t fall foul of the new requirements.
How we can help:
There is now even greater value in firms being registered with the FCA under the money laundering regulations. 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. 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.
Emma Croft
