UK Financial Conduct Authority Publishes Final Rules on Cryptoasset Financial Promotions

On June 8, 2023, the U.K. Financial Conduct Authority published its final Policy Statement setting out detailed rules for the U.K.'s cryptoasset financial promotions regime. The Policy Statement follows the publication on June 7, 2023 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order), which will bring the promotion of certain cryptoasset activities within the U.K.'s financial promotions regime. The FCA's rules will apply from October 8, 2023 (the same date that cryptoassets are brought within the financial promotions regime under the FP (Amendment) Order).

Under the FCA's rules, cryptoassets will be classified as Restricted Mass Market Investments (RMMIs) in line with the recently introduced financial promotion rules for high risk investments. The new rules for high-risk investments have applied since February 1, 2023, but the FCA was waiting for the legislative changes to the U.K.'s financial promotion regime (now set out under the FP (Amendment) Order) to be published before it brought cryptoassets within the new "high risk investments" regime.

Cryptoasset RMMIs can be mass marketed to retail investors subject to certain restrictions e.g.,:

• publication of risk warnings and summaries;
• a ban on incentives to invest;
• a 24-hour cooling-off period for first-time investors that receive a Direct Offer Financial Promotion (DOFP);
• a personalized risk warning for first-time DOFPs of cryptoassets;
• categorization of consumers as either restricted, high net worth or certified sophisticated investors – investors must sign a declaration stating they meet the relevant criteria;
• appropriateness assessments for DOFPs of crytoassets.

The Policy Statement also confirms that the recently enhanced rules on approving the financial promotions of unauthorized firms will be extended to the approval of cryptoasset promotions by unauthorized firms. Among other things, these rules require all relevant promotions to include a date stamp and name of the approver, and require firms to self-assess whether they have the necessary competence and expertise in an investment product or service before approving or communicating a financial promotion. The UK Financial Services and Markets Bill, which is currently passing through the final stages of debate in Parliament, will, if made, further amend the regime for approvers by introducing a regulatory gateway for authorized firms wishing to approve financial promotions for unauthorized firms. The FCA has said that it will publish rules on its approach to assessing applications in due course, once the FSMB has been passed. It expects to require applicants to show they have the necessary competence and expertise in the financial products for which they wish to approve promotions.

The FCA has published a separate consultation paper on proposed guidance for firms marketing cryptoassets to U.K. consumers. The guidance sets out how the FCA will approach, and firms should comply with, the requirement that cryptoasset financial promotions must be fair, clear and not misleading. The FCA plans to publish final guidance in autumn 2023, subject to the responses it receives. The FCA has also published a research note on trends in UK adults' cryptoasset holdings and consumer behavior.

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