FCA issues guidance on crypto-marketing and fraud recovery

The rules are contained in Policy Statement PS23/6, published in June 2023 after lengthy consultation, and have partial extraterritorial effect. They apply both to promotions made within the UK to UK consumers and financial promotions that can have effect in the UK, irrespective of the country of origin. Marketing of crypto-assets in the UK will, in future, be restricted to promotions communicated or approved by an 'authorised person', by an FCA-registered crypto-asset business or exempted persons with existing promotions, such as institutional investors.

There are no special exemptions for high-net-worth (HNW) individuals or sophisticated investors, although every investor must be categorised as restricted, HNW or a certified sophisticated investor before a direct offer financial promotion can be made. Investors must also sign a declaration that they meet the relevant criteria. The promoter must give risk warnings that address the investor by name and include the wording: ‘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’.

Crypto-assets are defined in the associated statutory instrument SI 2023/612 as 'any cryptographically secured digital representation of value or contractual rights that can be transferred, stored or traded electronically, and uses technology supporting the recording or storage of data (which may include distributed ledger technology).' Most cryptocurrencies and exchange tokens therefore fall in scope, says Mountford Chambers. Security tokens were already caught within the financial promotion order regime. However, the definition explicitly excludes both central bank digital currencies and non-fungible tokens.

The rules also carry implications for those attempting to recover misappropriated crypto-assets under Part 5 of the Proceeds of Crime Act 2002. Such recovery attempts have typically involved lengthy and costly proceedings seeking to prove criminal conduct, usually in the form of fraud by false misrepresentation by the vendor, with attempted recovery following criminal conviction, says Mountford Chambers

However, the new rules have the effect of rendering the offering of ‘dubious’ crypto-investment schemes unlawful if they have not been conducted through one of the above permitted gateways, amounting to a criminal offence.

Sources

• FCA
• Mountford Chambers
• FCA (June 2023 financial promotion rules for crypto-assets, PDF)