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Following our update last week on HM Treasury’s (HMT) revised approach to the financial promotion regime for cryptoassets, the Financial Conduct Authority (FCA) has now issued an update reminding cryptoasset firms to prepare for the changes.
The route to approval of a financial promotion – whether the business is registered in the UK or overseas – is set out below:
“Subject to parliamentary approval, once the regime comes into force there will be four ways of communicating crypto asset promotions to UK consumers:
- The promotion is announced by an FCA authorized person.
- The promotion is being run by an unauthorized person but has been approved by an FCA authorized person. Parliament is currently going through legislation that, if passed, would introduce a regulatory loophole that authorized firms would have to go through in order to approve financial promotions for unauthorized persons.
- The promotion is announced by a crypto asset company registered under MLRs with the FCA.
- The promotion is otherwise in accordance with the exemption conditions in the Financial Promotion Order.”
The above route would be a typical method for a UK registered crypto firm to approve a promotion. Cryptocurrency firms already registered under the MLRs will be able to communicate their own financial promotion for cryptoassets, provided they comply with the exemption conditions and relevant FCA rules. They will not need to seek further permissions to communicate their own promotions.
In accordance with the existing restrictions of the Finance and Services and Markets Act (FSMA), financial promotions that do not take one of these routes will be in breach of section 21 of the Act. This is a criminal offense punishable by up to two years in prison.
We recommend that firms seeking FCA registration have a clearly documented process for the approval of financial promotions and an identified responsible person to oversee and control this process.
Existing UK-registered crypto firms should also take a similar approach to documenting their process and apportioning responsibilities.
The FCA clarifies that as part of its “fitness and propriety” assessment it will assess:
- In making a fit and proper assessment, the FCA will take into account not only the fit and proper nature of the persons responsible for running the firm, but also the financial promotions associated with the firm.
- The company should be able to meet its requirements at the point of application (ie system controls and identified responsible person).
- As part of this assessment, the FCA will also consider whether the company carries on “business in the UK”. The strict obligations have not changed, but as the assessment now includes the activity of approving financial promotions, the regulator could set a higher standard for requiring UK incorporation to ensure supervisory oversight.
The FCA website provides help with the registration process and feedback on good and bad applications. Also, see our commentary on FCA’s “good and bad” quality apps here.
We at Elliptic’s GPRG team are always happy to communicate with clients about our understanding of these and other crypto-related regulations. Email mark.aruliah@elliptic.co.
Regulatory Financial Services EMEA
