On 8th October 2023, the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 came into force. In summary, the Order finally brought cryptoassets within the scope of the financial promotions restriction regime. Specifically, the Order expands the scope of the financial promotion restriction in section 21 of the Financial Services and Markets Act 2000 (‘FSMA’) to include financial promotions concerning cryptoassets, which will be classified as “restricted mass market investment(s)” by the Financial Conduct Authority (‘FCA’) and thus make them regulated for the purposes of the framework set out in FSMA.

What is a cryptoasset?

A qualifying cryptoasset is defined as follows:

(i) fungible; and

(ii) transferable.

A cryptoasset will be treated as “transferable” where it confers transferable rights or a communication made in relation to the cryptoasset describes it as being transferable or conferring transferable rights. This broadly includes any cryptographically secured digital representation of value or contractual rights that is transferable and fungible, but does not include cryptoassets that meet the definition of electronic money or an existing controlled investment.

Financial Services and Markets Act 2000

Section 21 of the Financial Services and Markets Act 2000 contains the basic restriction on unauthorised persons communicating financial promotions. It provides that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity (i.e., make or issue a financial promotion) unless one of the following applies: -

1. That person is authorised under FSMA, i.e., is an ‘authorised person’. This means that such persons have been authorised by the FCA or Prudential Regulation Authority in accordance with section 31 of FSMA.
2. The content of the communication has been approved by an authorised person in accordance with the FCA rules.
3. The communication is covered by an exemption.

Either:

I) The specific exemption created by the Order. This exemption, set out in Article 73ZA, enables cryptoasset businesses which are registered with the FCA under the Money Laundering Rules, but which are not otherwise authorised persons, to communicate their own crypto asset financial promotions; or

II) The promotion is otherwise communicated in compliance with the conditions of an exemption in the Financial Promotion Order (the FPO).

Is it hidden if I invest abroad?

The simple answer is no.

There have been situations where individuals travel to Dubai, Spain, Portugal, Holland, Thailand and various other exotic destinations. Usually, individuals’ outlook is that if I am abroad, the UK authorities are unable to reprimand me. However, whether the financial promotion rules apply to a given business and its promotions depend on the location of both the ‘communicator’ and ‘recipient’ of the promotion. The starting point being that any promotion with a UK link will be caught by the regime. As section 21(3) of FSMA states that promotions originating outside the UK will fall within the restriction if they are capable of ‘having an effect in the UK.’

It is also important to note that the FCA’s view on what constitutes a financial promotion is broad and can include websites accessible to UK consumers and social media targeted at UK consumers, irrespective of whether it is operated by a UK or overseas business.

What is the punishment?

It is a criminal offence for an unauthorised person to communicate a financial promotion in breach of the s.21 restriction, rendering the person liable to either or both of a fine or up two years in prison.

In addition to this, any agreements entered into by a person as a customer as a result of an unlawful financial promotion are unenforceable against that customer.

More information on Crypto Wallets

For more information, read our blog on whether crypto wallets can be frozen.