The FCA sets expectations ahead of incoming cryptoasset marketing rules

The FCA has issued a "final warning" to firms promoting cryptoassets to UK consumers to prepare for the cryptoassets financial promotion regime. Effective from 8 October 2023, this regime aims to protect consumers from promotions that make exaggerated claims about the benefits in investing in cryptoassets.

Under the new regime, unauthorised cryptoassets firms that are not registered with the FCA under money laundering regulations can only communicate financial promotions that have been approved by an authorised person or those falling within specific exemptions.

The new rules contain the following primary elements:

• Tougher regulations on advertising – The FCA will enforce stricter rules to ensure that promotions related to cryptoassets are clear, fair and non-misleading.
• Comprehensive risk disclosures – There will be a stronger emphasis on providing investors with comprehensive risk disclosures. This ensures that investors are fully informed about the potential risks associated with investing in cryptoassets.
• Prohibition of incentivisation – The new rules will prohibit the use of incentives to entice investors to invest in cryptoassets. This includes bonuses, additional "free" cryptoassets or any form of incentivisation.

Financial services professionals, especially those engaged in disseminating promotional material related to cryptoassets or advising on them, will have to tread carefully, ensuring adherence to the new FCA rules. They must maintain high levels of accuracy, clarity and fairness when presenting any promotional information or advice to consumers.

The FCA urges firms to assess their compliance with the regime. It warns that failure to comply may result in alerts being issued and promotions being removed or blocked. Seeking legal advice is recommended to avoid committing offenses and facing enforcement action.

Insurers of firms promoting cryptoassets must also understand the rules so as to be able to properly assess their insureds' potential exposure to this new regime.  Critically, we believe that it is important to note that the FCA's definition of financial promotion does not just cover the more obvious kinds of mass-marketing usually associated with "promotion" (for example advertising in print, websites or social media).  Rather, it includes any "invitation or inducement to engage in investment activity or to engage in claims management activity that is communicated in the course of business", so will also capture advice on investing in cryptoassets.

While the rules may initially look burdensome due to the added steps required and increased regulatory scrutiny, they might contribute to the industry's maturity, ensuring more measured, transparent and ethical practices around marketing of cryptoassets. By placing emphasis on transparency and consumer protection, the FCA's regulations could help in sculpting a more robust and trustworthy environment for digital assets.