Background
As we reported in February 2023, the government confirmed that it would extend the financial promotion regime to cryptoasset financial promotions and that the legislative changes would include a time-limited exemption for communications made by FCA registered cryptoasset businesses.
On 27 March 2023, a draft statutory instrument, the Financial Services and Markets Act 2000 (Financial Promotion) Amendment) Order 2023 (Order), was published along with a draft explanatory memorandum. The new regime, which will be supported by FCA rules, is intended to enhance consumers’ understanding of the risks associated with cryptoasset investments and ensure that cryptoasset promotions have to meet the same standards as for other financial services.
What’s in the Order
The Order makes the following amendments to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO):
- A new controlled investment, a qualifying cryptoasset, has been added and the controlled activities of dealing, arranging, managing and advising are extended to apply to qualifying cryptoassets. Not all cryptoassets are included in the definition of a qualifying cryptoasset. For example, it does not capture electronic money and cryptoassets that are already caught as controlled investments. It will also not include non-fungible tokens.
- The current exemptions in the FPO will apply to financial promotions of qualifying cryptoassets with the exception of Article 51 (Association of high net worth or sophisticated investors) and Article 61 (Sale of goods and supply of services).
- A new exemption has been created for communications made by cryptoasset exchange providers or custodian wallet providers that are registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (provided they are not authorised persons). Such businesses are referred as "registered persons." The government will review its approach to the exemption, which is intended to be temporary, alongside the future regulatory approach to cryptoassets.
The Schedule to the Order makes a number of targeted amendments to the Financial Services and Markets Act 2000 (FSMA) to give the FCA the ability to apply some of its existing supervisory and enforcement powers to registered persons and their financial promotions. The government has published a Keeling schedule that shows the changes to FSMA.
In light of the recent turbulence in cryptoasset markets and the risks to consumers, the implementation period for the Order has been shortened from 6 months to 4 months.
Guidance and Rules
The government will not be providing further guidance on the Order. However the FCA intends to amend its perimeter guidance manual. It has separately confirmed that it will publish its final rules for cryptoasset financial promotions once the legislation has been made – its approach is expected to be consistent with how it regulates other high-risk investments.
Help is at hand
If you have any questions about the regulatory regime for cryptoasset financial promotions, please let us know.
