Financial Promotions Regime
Section 21 of FSMA provides that financial promotions are prohibited unless (i) the promotion is issued by an authorised person; or (ii) the content of the communication has been approved by an authorised person (the “financial promotion restriction”).
The FCA defines financial promotion as “an invitation or inducement to engage in investment activity that is communicated in the course of business.”
Following the implementation of the FPAO, which amends the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“FPO”), “controlled investments” will be amended to bring 'qualifying crypto assets' within scope, and so subject to the UK's financial promotion regime from 08 October 2023.
For the purposes of the FPAO, a 'qualifying crypto asset' is any cryptographically secured digital representation of value or contractual rights that is transferable and fungible, but does not include crypto assets which meet the definition of electronic money or an existing controlled investment. In line with the above, most crypto asset will fall within the definition of a ‘qualifying crypto asset’, and so would be subject to the financial promotion restriction.
The FPAO amends the FPO to include crypto assets within certain “controlled activities” carried out in relation to a controlled investment, and to which the financial promotion restriction will apply. These are:
dealing in qualifying crypto assets;
arranging deals in qualifying crypto assets;
managing qualifying crypto assets;
advising on qualifying crypto assets; and
agreeing to carry on specified kinds of qualifying crypto assets.
From the 08 October, there will be four routes to legally promote crypto assets to customers in the UK, the promotion must be:
communicated by an authorised person;
approved by an authorised person, if made by an unauthorised person (including overseas firms);
communicated by (or on behalf of) a crypto asset business registered with the FCA under the MLRs; or
communicated in compliance with the conditions of an exemption in the Financial Promotion Order.
Promotions that are not made by an authorised person or following an appropriate exemption will be in breach of section 21 of the FSMA.
The financial promotion restriction applies extraterritorially, and so any marketing that is capable of having effect in the UK, regardless of where the marketing firm is based, is caught by this new regime. If the project arranges deals in qualifying crypto assets, this would bring it within scope of the financial promotion restriction.
The FCA does not envisage a scenario where an offshore firm could continue having UK customers without being in breach of s.21. The only exception that is realistically available is that of communicating to Investment Professionals.The most common route we are seeing firms take is to engage with an authorised firm in the UK to have their website and any promotions approved.