After introducing “tough” new rules for marketing cryptoassets in the UK, the FCA aims to support firms in complying with the financial promotions regime. Newly-finalised Guidance on cryptoassets financial promotions sets out the steps that firms are expected to take when advertising cryptoassets to UK consumers.
Here are some of the key points raised in the Guidance.
Who is it for?
The FCA Guidance on cryptoassets financial promotions is relevant to not only authorised and MLR-registered firms but also others involved in the communication of financial promotions concerning qualifying cryptoassets. This includes social media platforms and so-called “finfluencers”.
The FCA reminds influencers about the need to disclose relevant commercial relationships when promoting on social media. See our blogpost: FCA guidance on financial promotions and social media.
Do your homework
The FCA expects firms to do significant due diligence on the cryptoassets they promote. The aim is to make sure that cryptoasset financial promotions are fair, clear and not misleading. The extent and substance of the due diligence will depend on, for example, the form and content of the promotion, the nature of the cryptoasset and the likely characteristics of the target audience.
Promoting stablecoins? Be careful what you claim
In marketing, certain product characteristics are highlighted and sometimes exaggerated. When it comes to cryptoassets that claim stability or link their value to a fiat currency (commonly known as stablecoins), the FCA tells firms to tread carefully. For example, the FCA warns against the use of terms like “inflation resistant”. Firms are encouraged to conduct appropriate due diligence on claims of stability or links to a fiat currency, and to describe how stability is maintained.
The FCA provides additional guidance about cryptoassets that claim stability primarily by relying on an algorithm or a reserve of other cryptoassets. The FCA is likely to consider these claims to breach its fair, clear and not misleading communications rule and, where applicable, the Consumer Duty. Firms should also avoid describing these cryptoassets as being a “store of value”.
With cryptoassets no one size fits all, so be specific
Different cryptoassets come with specific characteristics which may pose a unique set of risks to consumers. This means firms should tailor their disclosures according to the cryptoassets being promoted.
For example, with regard to some complex yield models or arrangements that claim certain rates of return can be achieved, firms are expected to evidence their ability to meet any promoted rates of return. They should also disclose any changes to legal and beneficial ownership of the cryptoasset and, as part of their financial promotion, disclose who owns the legal and beneficial rights to the cryptoasset.
Similarly, asset-specific disclosures are expected for the marketing of commodity- or asset-backed cryptoassets. For example, the FCA expects firms to clearly and prominently set out proof of ownership of the underlying asset or commodity, provide evidence of any custodian and underlying custody agreement, and the terms of redemption for consumers.
Firms should also take care when preparing risk summaries, making sure that they disclose risks specific to the cryptoassets promoted. They are also expected assess the consumers’ understanding of the risks specific to the cryptoasset being promoted.
Your regulated status is not a feature
Firms might be tempted to use their regulated status for promotional purposes, but the FCA warns against giving an inaccurate impression of the regulated status of the firm or the cryptoasset to which the financial promotions relates. The FCA singles out MLR-registered firms, telling them not to mislead customers about their authorisation status.
FCA authorised firms: you have a Duty to uphold
FCA authorised firms are also reminded of their Consumer Duty obligations. They are required to comply with the high standards set by the Duty and consider their responsibilities under its general obligations, specifically the cross-cutting rules and the consumer understanding outcome.
Given the inherent complexities of certain cryptoassets, promoting firms are required to assess whether customers are likely to understand the information on risks and complexity of the promoted cryptoasset. Firms should consider not promoting cryptoassets if customers are unlikely to understand the promotion or the complexity of the cryptoasset.
With thanks to Elton Qemali for writing this post.