Definition of cryptoassets to be added to FSMA

The government has put forward draft legislation to make sure HM Treasury can bring crypto ads within the UK financial promotions regime.

Amending the FSM Bill

The Financial Services and Markets Bill is making its way through Parliament. It is currently at the Committee stage in the House of Commons which involves a detailed line-by-line examination of the Bill. This is a good opportunity for MPs to propose changes to the Bill.

One amendment is of specific interest to the UK crypto market. It proposes clarifying the scope of “investment” for the purposes of the financial promotions restriction in the Financial Services and Markets Act 2000 (FSMA) to include situations where “an asset, right or interest is, or comprises or represents, a cryptoasset”. Currently, marketing of unregulated cryptoassets does not fall within the UK financial promotions regime but the government has signalled its intention to bring some cryptoassets within its scope.

A similar amendment ensures that HM Treasury’s powers to make regulated activities relating to an "investment" of a specified kind cover investments which are cryptoassets. The government has already confirmed its intention to regulate stablecoins used as a means of payment and potentially other cryptoassets in the future under powers granted to it by the Bill.

Finally, a new definition of cryptoasset would be added to FSMA. This definition is nearly the same as the meaning of “cryptoasset” in the Money Laundering Regulations but the proposed FSMA definition is technology-agnostic. In other words, unlike its equivalent in the MLRs, the definition is not limited to DLT-based assets. Importantly, HM Treasury would be handed the power to amend this definition via secondary legislation.

Some points to note

The amendments are proposals at this stage and, even if adopted, may be subject to further change through the parliamentary process. That said, they were put forward by the Financial Secretary to the Treasury, Andrew Griffith MP, and so can be said to represent the government’s position. This makes them more likely to be included in the final text.

Assuming they make it into the final version of the Bill, the amendments do not by themselves bring cryptoassets into the regulatory net. They are intended to remove doubt about whether the existing financial promotion / regulated activity regimes can be extended to apply to investments which are, or represent, cryptoassets. HM Treasury would still need to take further steps to amend, for example, the Financial Promotions Order to apply the relevant rules to cryptoassets.

The proposed definition of cryptoasset is very broad but this does not mean that any new regulation would have to apply to all cryptoassets. For example, the government’s response to its consultation on cryptoasset promotions indicates that only “qualifying cryptoassets” would be caught so that e.g. non-fungible tokens would be left out of scope. HM Treasury has not yet shared its revised definition of “qualifying cryptoasset” for this purpose.

What happens next?

Once the Committee stage concludes in November, the Bill returns to the floor of the House of Commons for its report stage. This provides another opportunity for MPs to amend the Bill before it then moves to the House of Lords.