On 8 June 2023, the FCA published a policy statement (PS 23/6) setting out its final policy position on financial promotion rules for cryptoassets, as well as the near-final Handbook rules themselves. The rules are expected to come into effect on 8 October 2023 (the same date on which legislation to amend the Financial Promotion Order comes into effect as well - see previous blog post regarding the draft legislation here). Once the rules and legislation come into effect, firms illegally communicating financial promotions to UK consumers will be committing a criminal offence punishable by an unlimited fine and/or 2 years in jail.
In its policy statement, the FCA says it has decided to proceed with categorising cryptoassets as 'Restricted Mass Market Investments' and applying the associated restrictions on how they can be marketed to the UK (including, for example, clear risk warnings, banning incentives to invest, positive frictions, client categorisation requirements and appropriateness assessments). It will also make further changes to its consultation proposals to align with the rules in its other policy statement (PS22/10) for other high-risk investments (see below).
Irrespective of which side of the fence you sit, you may be disappointed by the rules – either because you consider them to be too restrictive or because you consider them not to go far enough (if you sit in the latter camp you're likely to be mainstream financial services firm, according to the FCA). The FCA, however, thinks the rules strike the right balance between consumer protection and promoting potentially beneficial innovation.
Cryptoasset businesses registered with the FCA under the MLRs will be permitted to communicate their own financial promotions in reliance on the exemption in Article 73ZA of the Financial Promotion Order, without the requirement for them either to be authorised under Part 4A FSMA, or to have their financial promotions approved by a person who is authorised under Part 4A.
As well as the policy statement, the FCA also published a guidance consultation (GC 23/1) on the requirement that cryptoasset financial promotions must be fair, clear and not misleading. Anyone wishing to comment on the guidance consultation must do so by 10 August 2023.
Further changes to its consultation proposals
The further changes to be made by the FCA to its consultation proposals are summarised in Table 1 of the policy statement and include the following:
- modifying the risk warning and risk summary wording relating to what protections consumers have when investing in cryptoassets. This will set out that consumers should not expect to be protected by the FSCS or the ombudsman service if something goes wrong;
- reversing its proposal to apply the 'shareholder benefits' exemption as set out in PS22/10. Accordingly, these benefits (for example, discounted products or services produced or provided by the firm receiving the proceeds of the investment) will be covered by the FCA's ban on incentives to invest and, therefore, be prohibited;
- reversing its proposal to apply the self-certified sophisticated investor category;
- updating its guidance on topics it expects firms to cover as part of the appropriateness assessment;
- aligning the implementation period of the rules with the reduced implementation period of 4 months set in legislation;
- clarifying how the regime applies to communications with existing consumers and that it generally expects the new regime to impact communications which seek to encourage new investments in cryptoassets;
- clarifying that the Consumer Duty applies to authorised firms communicating or approving cryptoasset financial promotions but not yet to financial promotions made by MLR registered cryptoasset businesses; and
- clarifying which parts of the Consumer Duty apply given cryptoassets are only within the financial promotion perimeter.