Dear Sir/Madam | Release Date: 21st September 2023
To read a shorter summary of this Dear Sir/Madam letter, click here.
To access the original FCA document, click here.
Long Summary
In a significant policy update, the Financial Conduct Authority (FCA) has issued a final warning to all cryptoasset firms that market to UK consumers, including those based overseas, regarding the upcoming financial promotion regime. This letter outlines the changes and specifies the expectations from the FCA to ensure compliance.
Scope and Impact of the New Financial Promotion Regime
The UK Government has legislated to include certain cryptoassets within the scope of the financial promotion regime to enhance consumer protection. This regulation will apply broadly, encompassing all forms of communication, including digital platforms like websites and apps. The FCA anticipates that this will cover the vast majority of cryptoasset firms interacting with UK consumers.
Importance of the New Regime
This regime aims to mitigate the risks associated with cryptoasset investments that may not align with consumers’ risk profiles. The goal is to ensure that consumers make investment decisions based on fair, clear, and accurate information, fostering a more consumer-focused competitive environment within the financial sector. Consistent with the rules applied to other high-risk investments, this initiative seeks to elevate the standards of consumer protection across the board.
Engagement and Compliance Expectations
Despite proactive engagement efforts by the FCA, including multiple announcements, letters, and industry engagements, there has been a concerning level of poor engagement from many overseas and unregistered cryptoasset firms. This lack of interaction raises serious concerns about these firms’ readiness to adhere to the new regulations once implemented.
Regulatory Actions and Consumer Protection
Unregistered and unauthorised crypto businesses will soon be restricted in their ability to communicate financial promotions, unless these are approved by an authorised person or fall under specific exemptions. Non-compliance will expose these firms to serious legal consequences, including potential criminal charges, with penalties that could include imprisonment and unlimited fines.
Expectations for Intermediaries and Support Entities
The FCA highlights the crucial role of various intermediaries, such as social media platforms, app stores, domain registrars, and payment services, that facilitate these firms. These entities are expected to take proactive steps to ensure they do not aid in communicating illegal financial promotions. There is also an emphasis on the obligations under the Proceeds of Crime Act 2002 (POCA), warning that failing to prevent the facilitation of illegal activities could lead to accusations of money laundering.
Upcoming Online Safety Bill (OSB)
With the imminent implementation of the Online Safety Bill, search engines and social media companies will soon be required to establish systems to mitigate the risks of illegal content, including financial promotions. This regime will be regulated by Ofcom, emphasising the collaborative efforts between regulators to enhance consumer safety online.
Compliance Guidance for Cryptoasset Firms
Once the new regime is effective, unregistered cryptoasset firms must either cease making unauthorised financial promotions to UK consumers or ensure that all promotions are approved by an authorised firm. These firms are expected to implement robust systems to prevent UK consumers from accessing promotions that have not been vetted, including measures like geo-blocking and stringent KYC/AML processes.
Conclusion and Next Steps
Cryptoasset firms are urged to review their current practices and promotional strategies to ensure compliance with the upcoming financial promotion regime. The FCA will vigilantly monitor compliance and will not hesitate to take enforcement actions against firms that fail to meet these regulatory requirements. Firms at risk of non-compliance are advised to seek legal counsel to mitigate potential legal and financial repercussions. This stringent approach underscores the FCA’s commitment to protecting UK consumers from the risks associated with unregulated financial promotions in the cryptoasset sector.