The FCA has written once again about its concerns about firms’ readiness to comply with the new regime.
The FCA expects that the vast majority, if not all, cryptoasset firms providing services to UK consumers will be in scope of this regime but is concerned that many unregistered, overseas cryptoasset firms who have UK customers have refused to engage with the FCA despite its best efforts.
Lack of engagement
The FCA has had constructive conversations with a number of firms about compliance with the financial promotions’ regime, taken on board feedback and put in place steps to support firms in preparing for this change. These steps include:
- Allowing firms to apply to delay compliance with the direct offer financial promotion rules
- Published feedback on good and poor practices
However, despite multiple communications, the FCA remains concerned by the lack of engagement from many unregistered, overseas cryptoasset firms who have UK customers. For example, only 24 firms responded to a survey that was sent to over 150 firms.
Pressure on firms supporting unregistered firms
Interestingly, the letter puts pressure on those intermediaries supporting and facilitating unregistered firms marketing to UK consumers (e.g. social media platforms, search engines, app stores and payments firms) – reminding them that they should carefully consider their obligations under the Proceeds of Crime Act (POCA), the Money Laundering Regulations (MLRs) and the Online Safety Bill.
Final warning: non-compliance
The FCA continues to emphasise that it will take action against firms illegally promoting to UK consumers. Once the regime enters into force, unregistered firms continuing to promote cryptoassets to UK consumers will be at risk of:
- being placed on the FCA’s Warning List;
- having illegal financial promotions removed or blocked (such as websites, social media accounts and apps); and / or
- enforcement action which may include the FCA applying to a Court for injunctions, seeking payment of compensation or, in the most serious cases criminal prosecution.
Firms are reminded that:
- Those continuing to promote cryptoassets to UK consumers without the requisite approval will likely be in breach of section 21 of the Financial Services and Markets Act 2000 (FSMA), which is a criminal offence punishable by up to 2 years imprisonment, an unlimited fine, or both.
- Any contracts entered into as a result of unlawful communications may be legally unenforceable against a UK customer.
- The FCA continues to work with its regulatory counterparts in other jurisdictions to seek assistance against firms breaching UK regulation.
Key reminders of the financial promotions regime
A few reminders from the FCA’s letter of the requirements and expectations once the regime is in force:
- Unregistered cryptoasset firms can legally communicate financial promotions to UK consumers if those promotions are approved by an authorised firm.
- Authorised firms are expected to notify the FCA when considering approving cryptoasset financial promotions and before doing so (in line with Principle 11 and SUP 15).
- Cryptoasset firms which cannot legally communicate financial promotions to UK consumers are expected to have robust systems in place that ensure UK consumers cannot access and respond to those promotions.
- Unregistered cryptoasset firms may communicate with their existing UK consumers as long as those communications do not breach the requirements of the regime. The FCA expects these communications to be exclusively directed at existing consumers and for the purpose of facilitating access to existing assets and must not promote further investment activity as part of these communications.