FCA issues final warning for cryptoasset firms marketing to UK consumers
The UK Financial Conduct Authority (FCA) has issued a final warning for cryptoasset firms marketing to UK consumers and those supporting them to get ready for the financial promotion regime.
The UK Government has legislated to bring certain cryptoassets within scope of the financial promotion regime. All firms marketing cryptoassets to UK consumers, including firms based overseas, must comply with this regime.
Many of these firms have refused to engage with the FCA. For example, only 24 firms responded to a survey that was sent to over 150 firms.
This lack of engagement gives the FCA serious concerns about unregistered firms’ readiness to comply with the new regime.
Once the regime is in force, unauthorised and unregistered crypto businesses will only be able to communicate financial promotions which have been approved by an authorised person or are within the scope of certain narrow exemptions in the Financial Promotion Order.
If unregistered cryptoasset firms continue to promote cryptoassets to UK consumers once the regime enters into force, without having an authorised person approve the promotion, they are likely to be in breach of section 21 of the Financial Services and Markets Act 2000 (FSMA). This would be a criminal offence punishable by up to 2 years imprisonment, an unlimited fine, or both.
The FCA says it will take action against firms illegally promoting to UK consumers including, but not limited to, placing firms on its Warning List and taking steps to remove or block any illegal financial promotions such as websites, social media accounts and apps.
In certain cases, the FCA will consider enforcement action, which may include applying to a Court for injunctions, seeking payment of compensation or, in the most serious cases, criminal prosecution.
The regulator reminds all businesses supporting unregistered cryptoasset firms that they should carefully consider their obligations under the Proceeds of Crime Act 2002 (POCA).
The FCA commented:
“We are concerned that benefits obtained by unregistered cryptoasset businesses from illegal financial promotions could be criminal property, and that intermediaries are at risk of receiving and dealing with this criminal property through, for example: the fees generated by app stores, social media platforms, search engines and domain name registrars from hosting illegal financial promotions; investments made due to illegal financial promotions; and fees charged by payments firms or other intermediaries for services to unregistered cryptoasset businesses that generate income through illegal financial promotions”.
Additionally, once in force, the Online Safety Bill (OSB) will place duties on search engines and social media companies to put in place systems and processes to mitigate the risks to users posed by the presence and dissemination of illegal content on their sites, including illegal financial promotions. This new regime will be overseen by Ofcom who the FCA have worked closely with to create a shared understanding of how platforms’ obligations under the OSB will interact with the financial promotions regime.
Once the regime enters into force, unregistered cryptoasset firms must cease making illegal financial promotions to UK consumers.
Unregistered cryptoasset firms can legally communicate financial promotions to UK consumers if those promotions are approved by an authorised firm. In approving a promotion, an authorised firm must comply with the relevant rules, including those requiring them to have the relevant competence and expertise.
The FCA expects authorised firms considering approving cryptoasset financial promotions to notify the regulator before doing so, in line with Principle 11 (relations with regulators) and SUP 15.
The regulator expects cryptoasset firms which cannot legally communicate financial promotions to UK consumers to have robust systems and procedures to prevent UK consumers accessing and responding to promotions they provide. For example, by geo-blocking UK consumers and including clear statements that their services are not available to people based in the UK. This should be supplemented by controls in the KYC/AML and onboarding and ongoing monitoring processes to ensure UK consumers (such as those giving a UK address or using a UK-based payment method) are not promoted to.
Failure to have these systems in place may result in firms committing a criminal offence.
If firms believe they are going to be in breach after the regime comes into force, they need to urgently consider their position. They must stop or block illegal promotions. If firms fail to comply with the requirements of the regime it is likely the FCA will issue an alert against them on its website and it will seek to remove or block those financial promotions.