Auteurs

Charlotte Hill

Associé

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Daniel Hirschfield

Senior Counsel – Knowledge

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Shaanil Senarath-Dassanayake

Collaborateur

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Auteurs

Charlotte Hill

Associé

Read More

Daniel Hirschfield

Senior Counsel – Knowledge

Read More

Shaanil Senarath-Dassanayake

Collaborateur

Read More

8 janvier 2024

Metaverse January 2024 – 2 de 3 Publications

Full compliance required under the UK's Cryptoasset Financial Promotion Regime

  • Briefing

The UK's cryptoasset financial promotion regime came into force from 8 October 2023. From 8 January 2024, those firms that were granted an extension by the Financial Conduct Authority (FCA) to implement certain "back end" rules will need to be fully compliant. This article provides an overview of the regime and rules.

How can cryptoassets be marketed into the UK legally?

A crypto financial promotion can only be made to UK persons if the promotion is communicated in one of the following ways:

  • by an authorised person
  • (for unauthorised persons) approved by an authorised person
  • by (or on behalf of) a cryptoasset business registered under the Money Laundering Regulations
  • to an exempt person under the Financial Promotion Order (note the exemptions relating to certified high net worth and self-certified sophisticated investors are not available for crypto promotions).

A breach of the financial promotion requirement is a criminal offence punishable by up to two years' imprisonment, the imposition of a fine, or both. It is also likely to give rise to reputational damage and opens up the possibility that the consumer may be entitled to recover any monies paid.

What rules apply if I make a crypto promotion?

See an overview of the rules in the table below. Note, additional requirements apply to crypto promotions that are a Direct Offer Financial Promotion (DOFP) as opposed to a standard financial promotion. 

Rule Reference(s) Brief description
Risk warnings and associated risk summaries

COBS 4.12A.10R,

COBS 4.12A.11R,

COBS 4.12A.20R,

COBS 4 Annex 1R

Must include the prescribed risk warning and summary of risk information on all crypto promotions.
Ban on incentives to invest COBS 4.12A.7R

Crypto promotions that offer any monetary or non-monetary benefits that incentivise investment activity (eg, ‘refer a friend’, new joiner bonuses) are banned.

Cooling-off period COBS 4.12A.18R

First time investors cannot receive a DOFP unless they reconfirm their request to proceed after waiting at least 24 hours.

Personalised risk warning pop up COBS 4.12A.20R

A personalised risk warning pop-up must appear for first time investors with a firm before a DOFP can be communicated.

Client categorisation

COBS 4.12A.21R, 

COBS 4 Annex 2R,

COBS 4 Annex 3R,

COBS 4 Annex 4R,

COBS 4 Annex 5R

Before a DOFP can be made in relation to a qualifying cryptoasset, the consumer must be categorised as a Restricted, High Net Worth, Self-certified Sophisticated or Certified Sophisticated investor. The investor must also sign a declaration stating that they meet the relevant criteria of said category.

Appropriateness assessment

COBS 4.12A.28R,

COBS 10 (particularly COBS 10.2.9G(1)(n),

COBS 10 Annex 3G or COBS 10A

Before an application or order for a qualifying cryptoasset can be processed in response to a DOFP, the firm must assess if the specific investment is appropriate for the consumer (i.e., the consumer has necessary experience and knowledge to understand the risks involved in relation to the specific product or service offered or demanded).

Record keeping requirements COBS 4.11.5R

Firms must record various metrics throughout the customer journey relating to client categorisation and appropriateness assessments.

Consumer Duty

Principle 12,

PRIN 2A,

FG23/3: Finalised non-handbook guidance on Cryptoasset Financial Promotions

The Consumer Duty applies to authorised firms communicating or approving crypto promotions targeted at retail clients (particularly the cross-cutting rules and the consumer understanding outcome). The duty does not yet apply to crypto promotions made by MLR registered cryptoasset businesses.

Communication with clients

Principle 7,

COBS 4.2.1R,

PRIN 2A.5.3R

Authorised firms communicating or approving crypto promotions as well as MLR registered cryptoasset businesses communicating crypto promotions must pay due regard to the information needs of its consumers, and communicate information to them in a way which is clear, fair and not misleading.

Non-compliance

The FCA proactively supervises and monitors firms' compliance with the rules, including regularly updating warnings lists of non-compliant businesses, and restricting businesses from approving crypto promotions (eg, rebuildingsociety.com Ltd). Where a contravention has taken place, the FCA will expect prompt remedial action. Failure to take such action may result in FCA enforcement action. 

Key sources

In addition to relevant FCA Rules particularly in the Principles for Businesses and COBS, other materials you should consider include PS23/6: Financial promotion rules for cryptoassets, FG23/3: Finalised non-handbook guidance on Cryptoasset Financial Promotions, GC23/2 Financial promotions on social media, Chapter 8 of the FCA's perimeter guidance, and other FCA publications on the new regime (eg, common issues with crypto marketing, feedback on good and poor practice). 

Help is at hand

If you have any questions on how the UK's crypto promotions regime may apply to you or the content of this article, please reach out.

 
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