Written by Pritpal Virdee

The FCA has published a policy statement on the financial promotion rules for cryptoassets, classifying them as “restricted mass market investments” and introducing a number of new obligations on promoters. This follows the publication of the statutory instrument bringing qualifying cryptoassets into the financial promotions regime.

The FCA has long been wary of the role that online adverts and social media in particular play in the promotion of cryptoassets and unrealistic investment gains and it is hoped that the use of positive frictions for first-time investors and more stringent rules governing promotions will provide investors with sufficient time and the right risk warnings to make informed choices.

In addition to the overarching requirement that financial promotions of cryptoassets must be fair, clear and not misleading, the key rules proposed include:

• Categorisation: as restricted mass market investments, the mass-marketing of cryptoassets to UK consumers will be permitted but subject to restrictions.
• Ban on incentives: monetary or non-monetary benefits which incentivise investment in cryptoassets will be banned (i.e. refer a friend or new joiner bonuses).
• Cooling-off period: firms must provide first-time investors with a 24-hour cooling off period after the investor requests to view direct offer financial promotions (DOFPs).
• Client categorisation: investors will be categorised as either restricted investors, high-net worth investors or certified sophisticated investors for the purposes of DOFPs of cryptoassets. The self-certified sophisticated investor category will not apply.
• Risk warnings and summaries: firms must include the following FCA-prescribed risk warning on all financial promotions of cryptoassets:

“Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.”

This policy statement and the upcoming regulatory changes will directly impact both UK and overseas cryptoasset businesses looking to operate/continue to operate in the UK as well as authorised firms considering communicating or approving cryptoasset financial promotions. With a number of regulatory developments expected in the near future in addition to those regarding financial promotions, firms must stay up to date and begin regulatory planning (if not already started) to avoid being caught out.