UK Financial Promotion Restrictions

Changes to the financial promotion regime in the UK 

Changes will bring crypto assets within scope 

of the financial promotion regime the 8 October 2023

Only firms who are registered under the MLRs or authorised in the UK will be able to carry out financial promotions in relation to crypto assets and related activities, unless they are able to rely on an exemption or have any promotions approved by an authorised person. The UK Government has legislated to bring certain crypto assets within scope of the financial promotion regime. 

All firms marketing crypto assets to UK consumers, including firms based overseas, must comply with this regime. 

From the 8th of October, 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. 

Supporting Unregistered Crypto Asset Firms

Businesses supporting unregistered crypto asset firms should carefully consider their obligations under the Proceeds of Crime Act 2002 (POCA). Benefits obtained by unregistered crypto asset 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 crypto asset businesses that generate income through illegal financial promotions.

Money Laundering 

Businesses supporting unregistered crypto asset firms may be at risk of committing money laundering offences under POCA. Firms must carefully consider their arrangements with unregistered crypto asset firms and ensure that they are not engaged in, supporting or facilitating money laundering and the obligation under POCA to report suspicious activity. Failing to disclose suspicious activity is a criminal offence. Intermediaries that support unregistered crypto asset firms to make illegal financial promotions should also consider their obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to ensure that they remain compliant, if applicable.

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 we have worked closely with to create a shared understanding of how platforms’ obligations under the OSB will interact with the financial promotions regime.

Ilegal Financial Promotions to UK consumers

Unregistered crypto asset firms must cease making illegal financial promotions to UK consumers

Unregistered crypto asset 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.  

Authorised firms considering approving crypto asset financial promotions shall notify the FCA before doing so, in line with Principle 11 (relations with regulators) and SUP 15. Crypto asset firms which cannot legally communicate financial promotions to UK consumers shall have robust systems and procedures to prevent UK consumers accessing and responding to promotions they provide. 

Unregistered crypto asset firms may only communicate with their existing UK consumers, including for the purpose of allowing consumers to transfer, withdraw or sell their existing assets. 

Registration Requirement

Day to Day Management

MLRs also refer to “day to day management” being the responsibility of “another establishment maintained by the business in the UK”. While the MLRs do not provide any guidance on this, the language is almost identical to that found in section 418 of the Financial Services and Markets Act 2000 (“FSMA”). 

The relevant section is s.418(5), which states that a person that would not otherwise be regarded as carrying on a regulated activity in the UK, would be if: 

The term “establishment” is not helpfully defined in FSMA, however the analogous provision in the Financial Services Act 1986 used the term “permanent place of business”. It would seem fair to argue that establishment should be seen in a similar way. 

The commonly accepted view is that this requires the carrying on of business at a definite and reasonably permanent place. 

Case law does suggest that the business need not constitute the main nor a substantial part of the business of the company (e.g. a PR office of an overseas bank was held to be an established place of business of that bank).  Further, in other case law the private residence of the director of a foreign corporation could, if the corporation’s business was conducted from there, be its “established place of business”. 

Relevant Activity

Definition of Regulation 14A(1), the firm must be providing the service of exchanging, arranging, or making arrangements with a view to the exchange of crypto assets for money, money for crypto assets, or one crypto asset for another. 

This activity is not only limited to those of crypto asset exchanges, but explicitly includes ICOs and trading platforms that exchange, arrange or make arrangements with a view to the exchange of, crypto assets for money or money for crypto assets, or crypto assets for crypto assets.

Carrying on business in the UK

To be caught by the Registration Requirement, a firm must be acting in the course of business carried on in the UK. The initial position is that firms carrying out Relevant Activities from overseas do not meet the Registration Requirement. Guidance on the MLRs further provides that “in most cases, application is triggered by the firm having a physical presence in the UK through which business is conducted, although other factors may also be considered. 

The mere fact that a firm has UK customers does not in itself mean that it would fall within the jurisdictional scope of the MLRs”.  

Although located outside of the UK, it is still possible that non-UK businesses are regarded as carrying on business in the UK for the purposes of the MLRs, even if they would not otherwise be regarded as doing so by having a permanent physical presence in the UK.  The MLRs indicate their territorial scope by giving an example: “a business which has its registered office (or, if the business does not have a registered office, its head office) in the UK, and day to day management of that business is the responsibility of that office or another establishment maintained by the business in the UK, then will be within the scope of the regulation.” 

On these facts it would be irrelevant where the person with whom the business is carried on (i.e. the customer) is situated. The FCA has, however, stated that when determining whether cryptoasset activity is carried on in the UK it will assess every case on its own merits, having regard to the business model and the nature of business that is being undertaken. Relevant factors it is likely to consider include:

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:

From the 08 October, there will be four routes to legally promote crypto assets to customers in the UK, the promotion must be:

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.