John Glen, economic secretary to the Treasury and City minister, said: ‘It’s important that people can understand the financial products they see promoted.
‘That’s why we want to put more protections in place around such financial promotions, including the promotion of cryptoassets, while continuing to ensure people have access to a wide range of products on the market.’
Currently, if an unauthorised firm wants to promote a particular financial product, they need to get that promotion approved by any authorised firm. There is no specific process through which a firm must be assessed as suitable and competent before it is able to approve the financial promotions of unauthorised firms.
However, the government says the variety and vast quantity of products being offered on the market today means this no longer provides a strong enough safeguard.
According to the consultation documents, in recent years the FCA has identified a number of cases of authorised firms failing to satisfy its requirements in approving the financial promotions of unauthorised persons.
This includes cases in which the approving firm has failed to undertake adequate due diligence to ensure promotions it has approved meet FCA requirements and instances of firms approving financial promotions which relate to products which are beyond their sphere of expertise and which, as a result, fail to comply with FCA rules.
In response, the Treasury is consulting on proposals to establish a regulatory ‘gateway’, which a firm must pass through before it is able to approve the financial promotions of unauthorised firms. Any firm wishing to approve the financial promotions of unauthorised firms would first need to obtain the consent of the FCA.
The Treasury said the promotion of cryptoassets is currently unregulated, but their proliferation, and the fact they are often targeted towards retail investors, underscores the importance of promotions being candid about the risks involved.
To ensure this, the government proposes to expand the perimeter of the financial promotions regime to include certain types of cryptoasset, meaning their promotion would be held to the same standards for fairness, clarity and accuracy that apply to traditional financial services promotions.
The consultation asks for views on a number of issues, including the definition of the cryptoassets to be considered controlled investments.
The government is proposing this should be ‘any cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and which is fungible; is transferable or confers transferable rights, or is promoted as being transferable or as conferring transferable rights’.
Cryptoassets which are defined as electronic money within the meaning given in the Electronic Money Regulations 2011 and currency issued by a central bank or other public authority would not be included, and nor would vendors merely offering to accept cryptoassets in exchange for their goods or services, and buyers merely offering cryptoassets to pay for goods or services, in the same manner as they would accept pound sterling payments.
Both consultations close on 25 October.
Regulatory Framework for Approval of Financial Promotions is here: https://www.gov.uk/government/consultations/regulatory-framework-for-approval-of-financial-promotions
Cryptoasset promotions is here: https://www.gov.uk/government/consultations/cryptoasset-promotions
By Pat Sweet