FCA pulls down shutters on crypto advertising to UK consumers

• Those rules mean the FCA now regulates non-broadcast adverting for a range of activities involving ‘qualifying cryptoassets’, including for example the advertising of their sale.
• ‘Qualifying cryptoassets’ cover a broad range of fungible cryptoassets, with some limited exceptions.
• The rules apply to all firms marketing to UK consumers, regardless of which country the firm is located in, and it can be a criminal offence to break the rules punishable by an unlimited fine and/or up to two years imprisonment.

What is a financial promotion?

A ‘financial promotion’ is an “invitation or inducement to invest”. A wide range of marketing, advertising or similar communications are capable of being financial promotions, including adverts placed through print, broadcast or online media, marketing brochures, emails, websites, apps or social media posts.

Who can legally advertise cryptoasset activities?

A financial promotion is only permitted if it:

• is communicated by a person who is licensed under the UK Financial Services and Markets Act 2000 (FSMA);
• approved by a FSMA-licensed person who is competent to approve third party qualifying cryptoasset financial promotions;
• is communicated by (or on behalf of) a cryptoasset business registered with the FCA under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs); or 
• benefits from a limited set of exemptions.

What are the new cryptoasset advert requirements?

The new restrictions mean that qualifying cryptoasset financial promotions must be clear, fair and not misleading, and must include clear risk warnings and risk summaries. Firms are prohibited from offering monetary or non-monetary incentives to invest (including refer a friend or new joiner bonuses).

Direct offer financial promotions (DOFPs) are subject to additional restrictions:

• DOFPs are adverts that include details of how to invest there and then (which may, for example, include ‘click here to buy now’ banner adverts).
• Firms can only make DOFPs to consumers who have been categorised as restricted, high net worth or certified sophisticated investors and for whom the investment is assessed as appropriate; and must provide a personalised risk warning and 24 hour cooling-off period to first-time investors.
• Certain firms can however apply to delay the implementation of the ‘back-end’ DOFP rules by three months.

Looking ahead

The extension of the financial promotions regime to cryptoassets follows a trend of tighter control of cryptoasset firms by the FCA. 

A particular issue under the new regime is that many cryptoasset firms do not need to be FSMA licensed, and may either not need to be registered under the MLRs (particularly if they are offshore) or may have been unable to get registered (according to FCA statistics, only 14% of applications for registration were approved prior to October 2023). Those cryptoasset firms may struggle to find suitable FSMA licensed firms to bless their advertising – which could effectively exclude them from doing business with UK customers. 

As to those firms that are in a position to publish financial promotions, they have faced the challenge of needing to implement significant IT systems build and operational change in order to meet the FCA’s new rules, over a short implementation period.

Acknowledgments to Luca Britos, trainee with A&O's Financial Services Regulatory team in London, for his contribution to this post.