UK regulator uses court action to warn global crypto firms about illegal ads

The Financial Conduct Authority has begun legal proceedings against a crypto exchange. The claim is the first the FCA has brought for alleged illegal promotion of crypto services into the UK. The action is a warning for overseas crypto firms about how they market their products to UK consumers.

Restriction on crypto marketing

In a press release the FCA has shared details of its claim against Panama-incorporated crypto exchange HTX. UK law restricts who can make financial promotions and in October 2023 extended this regime to cryptoasset promotions. The FCA claims that HTX breached this restriction by marketing its cryptoassets without being authorised or exempt.

Options for legal promotions

Overseas firms have limited routes to marketing their crypto products to UK customers. If they do not have a UK authorised or registered office, their crypto promotions must either be exempt or approved by a suitably licensed UK firm. The FCA has previously warned that failing to use one of these routes is a criminal offence.

No apparent controls

Crypto firms need to put in place controls to prevent UK consumers from accessing their promotions if no legitimate route is available to them. The FCA has previously encouraged firms to use geo-blocking or other location-based blocks. According to the particulars of claim, HTX’s website was accessible to UK consumers and an FCA employee was able to buy cryptoassets using a UK IP address and UK driving licence. Interestingly the FCA also sets out other factors that it proposes to rely on to demonstrate that the financial promotions were capable of having effect in the UK, including (i) terms only preventing UK customers from dealing in derivatives but not spot cryptoassets, (ii) the website being in English, (iii) GBP being an available currency, (iv) UK photo ID being accepted for verification, (v) evidence of visits to the website from the UK and (vi) advertising on social media platforms accessible to UK persons.

A warning shot

These legal proceedings serve as a reminder to firms promoting cryptoassets into the UK market:

• The FCA is actively monitoring for compliance with the financial promotions regime.

• The concept of a promotion is wide and can include websites, apps and social media posts.

• The FCA will seek to engage with crypto businesses it believes are non-compliant and is prepared to take court action where bilateral engagement does not generate results.