The FCA Offers a Deadline Extension for Crypto Marketing Rules Compliance

New rules regarding the marketing of cryptoasset products come into effect on 8 October. Angelika Hellweger outlines the Financial Conduct Authority’s stance.

Tougher rules aimed at making cryptoasset products marketing clearer and more accurate come into force on 8 October.

The Financial Conduct Authority (FCA) has indicated that it will consider giving cryptoasset firms more time to implement certain changes. While the core rules are still set to come into effect on 8 October, firms may be given more time to introduce features that require greater technical development.

But firms wanting to take advantage of this delayed deadline must apply for it. Cryptoasset firms registered or authorised by the FCA can apply for flexibility under a modification by consent. If their application is successful, they will have until 8 January 2024 to implement the 24-hour cooling period, client appropriateness testing and client categorisation features contained in the rules. 

Protection

The new rules will give consumers much greater protection from the risks that have been associated with cryptoasset-related sales. They state that cryptoasset firms’ marketing must be ‘clear, fair and not misleading’, labelled with prominent risk warnings and must not inappropriately incentivise people to invest. These rules apply to firms wherever they are based around the world.

Lucy Castledine, the FCA’s Director of Consumer Investments, said that as a “proportionate regulator’’ the Authority is giving firms that apply “a little more time to get the other reforms requiring technology and business change right’’.

She added: “We’ll maintain our close eye on firms during this extended implementation period. We are concerned by the failure of many overseas and unregulated crypto firms to engage with us on the new rules. Come 8 October, we will be taking action against firms illegally marketing to UK consumers.'

Anyone who continues promoting cryptoassets to UK customers past the October deadline without complying with the rules may be committing a criminal offence, punishable by an unlimited fine and/or up to two years’ imprisonment. However, it  remains to be seen whether the FCA will go after overseas firms given the complexities of bringing civil and / or criminal action against parties based outside of the UK. It is likely that this will only be undertaken for extremely serious violations.

Guidance

The FCA has published examples of good and poor practice to help firms prepare for the new marketing rules. It is set to publish final guidance for firms to provide further clarification regarding the expectations on them.

The marketing rules that have been devised come after the FCA’s work with the UK government regarding the future financial services regulatory regime for such assets. This has involved discussions with both international counterparts and the wider industry.

The deadline for the new marketing rules follows the 1 September deadline for UK cryptoasset firms to comply with the Travel Rule, which was introduced following government legislation. The Travel Rule is intended to bring greater transparency to cryptoasset transactions, improve sanctions screening and tackle the misuse of cryptoassets. It requires UK cryptoasset businesses to collect, verify and share information about cryptoasset transfers.

First Market Reaction

Dubai-based crypto exchange Bybit, which is not on the FCA's crypto register, has said it will suspend its UK operations in response to the latest regulatory changes.

As from October 1, new customers can no longer open accounts. From October 8, existing customers will not be allowed to add funds, create new contracts or increase their positions. They will, however, be able to reduce and close their positions, and withdraw their funds from the platform.