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What has happened?

In June 2023, the FCA announced in its Policy Statement PS 23/6 new rules that mean crypto firms must ensure that consumers have the appropriate knowledge and experience to invest in crypto. Those firms promoting crypto must also put in place clear risk warnings and ensure that financial promotions are clear, fair, and not misleading.

Those firms marketing cryptoassets to UK consumers will need to introduce a cooling-off period for first-time investors from 8 October 2023, under new rules announced by the FCA. As part of a package of measures designed to ensure those who buy crypto understand the risk, ‘refer a friend’ bonuses will also be banned. 

The FCA is also consulting on additional guidance (GC 23/1) setting out its expectations of firms advertising crypto to UK consumers. Respondents will have until 10 August to respond.

What are the key points?

• The FCA has promised to take robust action against firms breaching these requirements. This may include, but it is not limited to, requesting takedowns of websites that are in breach, placing firms on a warning list, placing restrictions on firms to prevent harmful promotions, and enforcement action. Firms illegally communicating financial promotions to UK consumers will be committing a criminal offense punishable by an unlimited fine and/or two years imprisonment.
  
  
• There will be a reduced implementation period for this Policy Statement of four months.
  
  
• The FCA intends to proceed with categorising cryptoassets as ‘Restricted Mass Market Investments’ (RMMI) and applying the associated restrictions on how they can be marketed to UK consumers.
  
  
• The main risk warning will be shortened¹ and the FCA will also modify the risk warning and risk summary wording relating to what protections consumers have when investing in cryptoassets. This will set out that consumers should not expect to be protected by the FSCS or the Ombudsman Service if something goes wrong. The FCA will allow firms to vary the prescribed risk summary where they have a good reason to do so.

¹   Don’t invest unless you’re prepared to lose all the money you invest.

This is a high-risk investment and you should not expect to be

protected if something goes wrong. Take 2 mins to learn more.

• A personalised risk warning pop-up (or equivalent) will be issued to first-time investors with a firm. For Restricted Mass Market Investments, this would appear before a Direct Offer Financial Promotion could be communicated. It will appear as;

[Client name], this is a high-risk investment. How would you feel if you lost the money you’re about to invest? Take 2 min to learn more.

• The Consumer Duty applies to authorised firms communicating or approving cryptoasset financial promotions, but it does not yet apply to financial promotions made by MLR registered cryptoasset businesses.
  
  
• The FCA expects authorised firms considering approving cryptoasset financial promotions to notify it of their intention to do so in line with Principle 11 (relations with regulators) and SUP 15.
  
  
• The FCA intends to proceed with applying the ban on incentives (including ‘refer a friend’ or new joiner bonuses) to cryptoasset promotions and it does not intend to apply the ‘shareholder benefit’ exemption to them.
  
  
• The FCA will implement, from 8 October 2023, a minimum 24-hour cooling-off period for first-time investors with a firm. This would mean that the consumer could not receive a Direct Offer Financial Promotion (DOFP) unless they reconfirmed their request to proceed after waiting at least 24 hours. This rule only applies to first-time investors with a specific firm i.e. where a consumer has not previously received a DOFP from the firm
  
  
• Before a DOFP can be made in relation to an RMMI the consumer must be categorised as a Restricted, High Net Worth, Self-certified Sophisticated or Certified Sophisticated investor. This requires the investor to sign a declaration stating that they meet the relevant criteria to be categorised as such. It does not propose to apply the self-certified sophisticated investor category to DOFPs for cryptoassets.
  
  
• Where an investor is categorised as certified or self-certified sophisticated for some RMMIs, these investments do not count toward the 10% restricted investor limit for other RMMIs.
  
  
• Before an application or order for an RMMI can be processed in response to a DOFP the firm must assess the specific RMMI as appropriate for the consumer. This requires the firm to assess that the consumer has the necessary experience and knowledge to understand the risks involved in relation to the specific product or service offered.
  
  
• The FCA intends to proceed with applying the record-keeping requirements to financial promotions for cryptoassets. The number of metrics will be cut to only those relating to client categorisation and appropriateness assessments.
  
  
• The FCA intends to proceed to apply various requirements to authorised firms that communicate and approve financial promotions for cryptoassets. These are as follows:
  
  1) All approved promotions must include the name of the authorised firm approving the promotion, as well as the date of approval.
  
  2) The FCA will strengthen the rules on a firm having the relevant competence and expertise (C&E) in the type of investment being promoted, when communicating or approving a financial promotion.
  
  3) An approver will need to take reasonable steps to monitor the continuing compliance of approved promotions throughout the lifetime of the promotion.
  
  4) Approver firms will be required to get attestations of ‘no material change’ from clients with approved promotions every three months, for the lifetime of the approved promotion.
  
  5) Section 21 approvers should take reasonable steps to ensure that the relevant processes for appropriateness tests comply with FCA rules for the lifetime of the promotion.
  
  6) The FCA will extend existing conflicts of interest obligations to firms approving financial promotions for unauthorised persons and to firms confirming compliance with a financial promotion for an authorised firm.
  

“These new rules represent a key change for the crypto industry and will make crypto promotions and advertising much harder. However, I hope this will be a positive step for consumers, with more information and risk warnings in place to inform their decision making.”  
Jessica Cath - Head of Financial Crime

How can we help you?

Thistle Initiatives has supported crypto firms for a number of years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, its team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your cryptoasset marketing, Consumer Duty, or more general regulatory questions? Contact its specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.