According to the UK government, around 2.3 million people in the UK are now thought to own a cryptoasset with their popularity rising. However, research suggests that understanding of what crypto actually is is declining, suggesting that some users may not fully understand what they are buying and creating a risk that these products could be mis-sold.
The government therefore consulted on making changes to the rules and has now published its consultation response. It confirms the intention to legislate to bring certain cryptoassets into the scope of financial promotion regulations and sets out further detail on how the government intends to regulate relevant cryptoasset promotions. It complements broader proposals on cryptoassets and stablecoins set out via the government’s 2021 consultation on a regulatory framework for stablecoins, with next steps due to be announced in due course.
The promotion of qualifying cryptoassets will be subject to FCA rules in line with other financial promotions such as stocks, shares, and insurance products. The government aims to balance the desire to encourage innovation with the need to ensure that cryptoasset advertisements are fair, clear, and not misleading.
This will be done via secondary legislation to amend the Financial Promotion Order, which sets out the investments and activities to which the financial promotion regime applies. Under the Financial Services and Markets Act 2000, a business cannot promote a financial product unless they are authorised by the FCA or the Prudential Regulation Authority, or the content of the promotion is approved by a firm which is. Firms that wish to promote such investments and activities must comply with binding rules that financial promotions must be fair, clear, and not misleading.
This will provide the Financial Conduct Authority with the appropriate powers to regulate the market more effectively. The FCA is now also consulting on their proposed financial promotions rules that will apply to cryptoassets. The FCA proposes changes to its classification of high-risk investments; the consumer journey into high-risk investments; to strengthen the role of firms approving and communicating financial promotions; and apply financial promotion rules to qualifying cryptoassets. The consultation ends on 23 March 2022.
The government intends to put in place a suitable transitional period (approximately six months) from both the finalisation and publication of the proposed Financial Promotion Order regime and the complementary FCA rules. The legislation will be brought forward once parliamentary time allows.
