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Dear Sir/Madam | Release Date: 4th July 2023

To read a shorter summary of this Dear Sir/Madam letter, click here.

To access the original FCA document, click here.

Long Summary

The UK Government has enacted legislation to include qualifying cryptoassets within the financial promotion regime, effective from 8 October 2023. This letter outlines the new regulations, the expectations of firms marketing cryptoassets, and the routes available for legally communicating financial promotions to UK consumers.

Scope and Definition of Financial Promotions

The regime defines financial promotions broadly, covering all forms of communication that could influence a consumer’s decision-making process regarding cryptoassets. This includes digital communications like websites, mobile apps, and social media platforms. The regulations apply to promotions originating both within and outside the UK, emphasising that any promotion capable of influencing UK consumers falls under this regime.

Legal Routes for Communicating Financial Promotions

From 8 October 2023, there are four legal avenues for communicating cryptoasset financial promotions to UK consumers:

  1. Authorised Firms: Promotions communicated by an authorised person.
  2. Approval by Authorised Firms: Promotions by unauthorised persons but approved by an authorised person.
  3. Registered Cryptoasset Businesses: Promotions by businesses registered under the FCA for compliance with Money Laundering Regulations (MLRs).
  4. Exemptions: Promotions that comply with conditions of exemptions under the Financial Services and Markets Act 2000 (FSMA).

Compliance Expectations and Consequences

Promotions not adhering to these pathways may constitute a breach of Section 21 of the FSMA, potentially resulting in criminal charges, including imprisonment, fines, or both. The FCA emphasises strict enforcement against illegal promotions, including public warnings and legal actions to remove non-compliant materials.

Regulatory Requirements and Guidance

Promotions that follow the first three legal routes must comply with FCA rules detailed in Policy Statement PS23/6. These include the use of specific risk warnings, cooling-off periods for new investors, and the overarching requirement for promotions to be fair, clear, and not misleading.

On 8 June 2023, the FCA also released Guidance Consultation GC23/1, which provides further clarity on the standards expected from firms to ensure their promotions are not misleading. The consultation seeks feedback from firms by 10 August 2023.

Preparation for Compliance

Cryptoasset firms are urged to prepare for the upcoming regulatory changes by reviewing the detailed guidance on the FCA’s website and determining which legal route they will utilise for financial promotions. Firms not registered or authorised must consider how they will adapt their operations to comply with the new regulations or cease servicing UK consumers.

Registration and Application Process under MLRs

Most cryptoasset firms will need to register with the FCA under the MLRs to communicate financial promotions legally. The FCA outlines a rigorous application process on its website, requiring comprehensive and accurate information from applicants. Poor quality or incomplete submissions will be rejected, and firms are advised to seek independent legal advice if needed.

Expectations from Firms

Firms are expected to:

Takeaways and Actions for Affected Readers

Awareness and Action: Firms should familiarise themselves with the new financial promotion regime and assess how it impacts their operations. Immediate action is required to align with the new rules by 8 October 2023.

Compliance Strategy: Decide on the most suitable legal route for communicating financial promotions and ensure all promotional activities are compliant.

Engagement: Participate in the FCA’s consultation process and attend planned roundtables to better understand regulatory expectations.

Preparation: Review and prepare necessary documentation for registration under the MLRs, considering the detailed guidance provided by the FCA.

Communication: Clearly inform UK customers of any operational changes due to the new regime and ensure transparency in all financial promotions.

This regulatory update underscores the FCA’s commitment to safeguarding UK consumers in the cryptoasset market by ensuring that financial promotions are fair, clear, and reflect the actual risks involved.

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