Promoting financial products in the UK: Updates on the new Gateway and bringing cryptoassets within scope

Financial Promotions Gateway

We previously wrote about the FCA’s plans for a new financial promotions gateway: Financial Promotions: New Gateway Ahead.

A final policy statement was published in September this year, which supports one of several key legislative changes made by the Government in the Financial Services and Markets Act 2023. The new gateway will come into effect on the 7th of February 2024, aiming to strengthen the FCA’s oversight of approvals and improve the standard of financial promotions.  After this date, all authorised persons who wish to continue to approve financial promotions will have to apply to the FCA for permission to do so, unless a relevant exemption applies.

The new ’Approver Permission’ will be required for firms who approve, or intend to approve, financial promotions for unauthorised persons. It will not impose changes on authorised persons who approve:

1. their own financial promotions for communication by unauthorised person,
2. the financial promotions of their appointed representatives (ARs) for regulated activities they have accepted responsibility for, or
3. the financial promotions of unauthorised entities within their corporate group.

The window to apply for approver permission opened on 6th November 2023 and will remain open until 6th February 2024. From 7th February 2024, firms without the approver permission will no longer be able to approve financial promotions unless an exemption applies. However, firms will be able to continue to approve financial promotions for unauthorised persons during the permission window, whilst they await approval of their application. More information on how to apply can be found on the FCA’s website.

The Regulation of Cryptoassets Promotions

In addition to changes to financial promotions generally, the FCA has focussed heavily on bringing the promotion of certain cryptoassets within the scope of its regime (for a recap on the developments in this area, see our article from July 2023).

Qualifying cryptoassets that fall within the regime are defined within the Financial Promotions Order (FPO), but are broadly defined by the FCA in its policy statement (PS23/6) as “…any cryptographically secured digital representation of value or contractual rights that is transferable and fungible, but does not include cryptoassets which meet the definition of electronic money or an existing controlled investment.”(see Paragraph 1.1). The proposals set out in PS23/6 have now been implemented, and the new regime has been in force since 8^th October 2023.

Firms who want to promote cryptoassets in the UK now have four routes to lawfully communicate cryptoasset promotions to UK consumers, namely:

1. Communication by an FCA authorised person.
2. The promotion is made by an unauthorised person but approved by an FCA authorised person (and, as above, the authorised person will require approver permission from 7 February 2024 unless a relevant exemption applies).
3. Communicated by a crypto asset business registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
4. The promotion complies with the conditions of a relevant exemption in the Financial Promotion Order (such as the sophisticated investor exemption in Article 50. However, please note that the Article 48 (high net wort investor) and Article 50A (self-certified sophisticated investor) will not be available for qualifying cryptoassets as those exemptions only apply to other types of asset. Other exemptions have been expressly excluded from applying to qualifying cryptoassets in the latest legislation. Reliance on an existing exemption within the FPO must be considered carefully).

The new regime applies to all firms that market cryptoassets to UK consumers, including firms based overseas and regardless of what technology is used to make the promotion. This change brings crypto assets in line with other high-risk investments, which is an acknowledgment of the widening crypto asset market and the complexity and high-risk nature of these investments. The FCA wants to ensure that people purchasing these investments understand what they are purchasing, and the risks involved.

Failure to promote using one of the above routes will breach Section 21 of the Financial Services and Markets Act 2000 (FSMA), which is a criminal offence.

On any analysis, the interplay between the various routes to a compliant promotion is not straightforward. Perhaps in recognition of this fact, the FCA has additionally produced non handbook guidance and examples of good and poor practice, both of which are available on the FCA’s website with additional commentary. The non-handbook guidance also emphasises the requirement on authorised firms to comply with the Consumer Duty when approving its own or others’ promotions.

One potential anomaly that arises from the plethora of registrations, authorisations and exemptions in relation to cryptoasset promotion approval is that those registered under the MLRs are not required to comply with the Consumer Duty when approving their own financial promotions. In PS23/6 (see paragraphs 4.29 – 4.30), the FCA’s justification for this decision is that the exemption under the FPO for MLR registered businesses is designed to be narrow and temporary. It recognises that the exemption will be removed once the Government’s wider cryptoasset regime comes into force…

…and just in time, the FCA has now published its Discussion Paper on regulating fiat (currency) backed stablecoins (a particular kind of cryptoasset that is linked to or ‘tracks’ another, often more stable, asset). The Discussion Paper terms this phase 1 of regulating cryptoassets and asks for comments by 6 February 2024. Look out for our future commentary on the paper, coming soon.

If you wish to talk to the team at Capital about how these changes might affect your cryptoasset business, please get in touch with our Financial Services Regulation team.