HM Treasury Confirms Tightening of Rules for Crypto-Asset Financial Promotions

Following its July 2020 consultation, HM Treasury has published a consultation response on its proposals to amend the U.K.'s financial promotion rules. These include changes to subject unregulated crypto-assets to the financial promotions regime. The response summarizes the feedback to the consultation and outlines how relevant crypto-asset promotions will be regulated. The government is proceeding with its proposal to bring qualifying crypto-assets within the scope of the Financial Promotion Order as controlled investments. Qualifying crypto-assets will be fungible (freely replaceable by another of a similar nature or kind) and transferable (which excludes crypto-assets in closed systems). E-money and central bank digital currencies will be excluded from the definition. In a change from the original proposal, the government has decided to remove the reference to distributed ledger technology from the definition of a qualifying crypto-asset. The aim of this change is to future-proof the definition for technological innovation.

HM Treasury is not intending to add any controlled activities to the Financial Promotion Order and considers that only the following activities will apply to qualifying crypto-assets:

• dealing in securities and contractually based investments
• arranging deals in investments
• managing investments
• advising on investments
• agreeing to carry on specified kinds of activity.

A proposed additional exemption for a vendor stating that it is willing to accept or offer qualifying crypto-assets in exchange for goods and services is being dropped. HM Treasury has opted not to add any such exemption because such a statement would not constitute an inducement to enter into an investment activity and would therefore not fall within scope of the Financial Promotion Order.

Following feedback, HM Treasury has decided to implement a six-month transitional period from the finalization of the legislative measure and the publication of the U.K. Financial Conduct Authority's rules. The FCA is expected to consult soon on its proposed rules to implement the amendments.

The changes should be considered with the introduction of a regulatory gateway for the approval by authorized firms of financial promotions of unauthorized firms and the proposals relating to the promotion of high risk investments.

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