UK Statutory Instrument Published to Bring Cryptoassets Within Financial Promotions Regime06/12/2023On June 7, 2023, the U.K. government published a statutory instrument (the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order) and related explanatory memorandum) amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The amendments broadly reflect HM Treasury's final proposals on cryptoasset financial promotions, published in January 2022. The expanded financial promotions regime will apply from October 8, 2023, an implementation period of four months as opposed to the originally proposed six, given recent market volatility. The new regime will capture promotions for "qualifying cryptoassets" with respect to the following (existing) controlled activities:
- dealing in securities and contractually based investments;
- arranging deals in investments;
- managing investments;
- advising on investments; and
- agreeing to carry on any of the above activities.
Under the amended regime, "qualifying cryptoassets" will become a "controlled investment" under the FPO. "Cryptoassets" are defined in the same way as under the Financial Services and Markets Bill. "Qualifying" cryptoassets will be defined broadly to include cryptoassets that are fungible and transferable, including exchange tokens like Bitcoin. NFTs are not intended to be in-scope.
This means that, from October 8, 2023, these assets, when involved in such activities, will be covered by the U.K's financial promotion restriction. Firms will only be able to communicate cryptoasset promotions if:
- The promotion is communicated by an FCA-authorized firm.
- The promotion is made by an unauthorized firm but approved by an FCA-authorized firm. The UK Financial Services and Markets Bill, which is currently passing through the final stages of debate in Parliament, will, if made, introduce a regulatory gateway for authorized firms wishing to approve financial promotions for unauthorized firms.
- The promotion is communicated by a cryptoasset business registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This is an important temporary exemption to the financial promotion restriction, which will allow cryptoasset businesses that are not authorized firms but are registered with the FCA for AML purposes to communicate their own financial promotions. Cryptoasset exchange providers and custodians seeking to provide services in the U.K. are required to register with the FCA under the MLRs. However, a larger number of cryptoasset firms may choose to register in light of this exemption. This exemption was proposed in a consultation response written by Innovate Finance and Shearman & Sterling, to ensure that unauthorized cryptoasset firms could continue to promote their products without the need to be authorized (which most cryptoasset firms are not) or having to rely on approval by authorized firms, who may not have the necessary expertise given the nascent nature of the industry. HM Treasury published a statement in March 2023 acknowledging the need for this exemption in light of industry's arguments. Businesses that use this new exemption for qualifying cryptoassets will not be able to approve cryptoasset financial promotions for others and may not approve financial promotions of other assets. The government plans to review its approach to the temporary exemption alongside its ongoing broader consultation on the regulation of cryptoassets.
- The promotion otherwise complies with the conditions of an exemption in the Financial Promotion Order, for example for communications to high net worth companies or regulated financial institutions.
The FP (Amendment) Order also grants the U.K. Financial Conduct Authority power to make further rules and guidance on the cryptoasset financial promotion regime from June 8, 2023. The FCA published its rules on June 8, 2023—they are expected to come into force at the same time as the FP (Amendment) Order.
The financial promotion rules will come into force ahead of other proposals to regulate cryptoasset activities in the U.K., including proposed rules on regulating certain stablecoin activities under the UK Financial Services and Markets Bill 2022 and HM Treasury's separate consultation on regulating a broader range of cryptoassets and activities.
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