On 20 July 2020, HM Treasury (the “Government”) released a consultation paper regarding cryptoasset promotions (the "Consultation").
The Consultation includes proposals to address risks to consumers (e.g. the purchase of unsuitable products) and markets (e.g. exposition to fraudulent activity) posed by unregulated cryptoassets and identified by the Taskforce in a report published in October 2018.
A key consumer protection issue in cryptoasset markets identified by the Taskforce is related to misleading advertising and a lack of suitable information.
In lights of these issues, some of the Government proposals aims to extend the scope of the financial promotions regime to cover promotions of cryptoassets to ensure consumers are provided with clear and accurate information that enables them to make informed decisions.
This will be done by bringing certain unregulated cryptoassets or “qualifying cryptoasset” within the scope of controlled investments as set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order (FPO) 20051. “Qualifying cryptoasset” being defined in the Consultation as: “any cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and which —
(a) is fungible;
(b) is transferable or confers transferable rights, or is promoted as being transferable or as conferring transferable rights;
(c) is not any other controlled investment as described in this Part;
(d) is not electronic money within the meaning given in the Electronic Money Regulations 2011; and (e) is not currency issued by a central bank or other public authority.”
Thus, the definition covers unregulated cryptoassets which are both fungible and transferable and excludes security tokens and stablecoins already in the scope of the FPO, and e-money tokens regulated under the Electronic Money Regulations.
The Government is also proposing to extend the scope of controlled activities to include activities related to the buying, selling, subscribing for or underwriting of qualifying cryptoassets, and is considering some exemptions for qualifying cryptoassets.
Although still at an early stage, once the proposed amendments become law, businesses operating in the field of cryptoasset in the UK will be significantly impacted. Businesses will be required to take the necessary steps to ensure that their promotion and marketing materials comply with the FCA's rules on financial promotions.
As a separate note, the HM Treasury is also consulting to strengthen the oversight of financial promotions issued by unauthorised firms. The Government proposed to establish a regulatory ‘gateway’, that a firm is required to pass through before it could approve the financial promotions of unauthorised persons.
In other words, unauthorised persons will only be able to communicate financial promotions which have been approved by a firm that has obtained consent from the FCA to provide such approval.
Comments on both consultation papers must be submitted by October 25, 2020.
The consultation papers can be found here:
NB: HM Treasury is part of the Cryptoassets Taskforce (the Taskforce) established in March 2018 by the government, and consisting also of, the Financial Conduct Authority (FCA) and the Bank of England.