The response to the consultation on crypto assets promotions consulted upon in July 2020 was published by the UK government in January 2022. It outlines the proposed approach to the financial promotion of ‘qualifying crypto assets’ within the ambit of the Financial Promotion Order.
The Crypto Assets Taskforce, consisting of HM Treasury, the Bank of England and the Financial Conduct Authority (‘FCA’) published an earlier report in 2018, which found that misleading advertising and a lack of suitable information was a key consumer protection issue in crypto asset markets.
The report found that crypto asset advertising, which is often targeted at retail investors, can often overstate benefits and rarely warns of volatility risks.
UK Financial Promotions Regime
The current marketing regime across the UK is set out in the Financial Services and Markets Act 2000 (‘FSMA’) which contains the financial promotion restriction. This restriction is broad in scope and states that a “person must not, in the course of business, communicate an invitation or inducement to engage in investment activity or claims management activity”. This includes invitations or inducements to engage in certain activities which are not regulated activities.
The proposals are part of the governments wider approach to regulating crypto assets.
The government has set out its proposed:
- Definition of ‘qualifying crypto assets’ for the purposes of the Financial Promotion Order
- How the relevant controlled activities and exemptions will be extended to such ‘qualifying crypto assets’
Qualifying Crypto asset
The proposed definition of a ‘qualifying crypto asset’ is any cryptographically secured digital representation of value or contractual rights which is fungible and transferable.
The definition will exclude other controlled investments, electronic money under the Electronic Money Regulations 2011, and central bank money.
The government also intends to exclude crypto assets that are only transferable to one or more vendors or merchants in payment for goods or services will also be excluded.
Qualifying Crypto Asset Summary
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Transferability |
Yes – subject to transferability exclusions |
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Fungibility |
Yes |
Excludes Non-fungible tokens (NFT) |
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Distributed Ledger Technology |
Excluded |
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Hybrid Tokens |
Anticipated to fall within the new definition of qualifying crypto asset or controlled investment |
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DeFi and Crypto Asset Lending |
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Financial Promotion Order – Treatment of Controlled Activities
The Financial Promotion Order contains a series of controlled activities that capture the main business activities conducted by firms who deal in the controlled investments, some of which may not be relevant to crypto assets. As such, amendments will be made, as relevant to certain controlled activities within the Financial Promotion Order (FPO).
The government further sets out that exemptions for qualifying crypto assets should be consistent with the approach taken to exemptions for other controlled investments within the Financial Promotion Order.
The proposed regime will be implemented subject to a six-month transitional period from the point of amendment to the Financial Promotions Order and related FCA rules
