The government has confirmed that the scope of the Financial Promotion Order 2005 (FPO 2005
) will be expanded to bring certain cryptoassets within its remit. This is a further effort to update regulations to meet the demands of technological advances.
The FPO 2005 supplements section 21 of the Financial Services and Markets Act 2000, which in broad terms provides that invitations or inducements to engage in investment activity may not be communicated except by a person authorised by the Financial Conduct Authority (FCA), unless the content of the communication is approved by an FCA authorised person. Engaging in investment activity includes buying and selling shares and other investments such as financial instruments, and so section 21 regulates the basis on which such investments can legally be marketed.
The FPO 2005 lists the investments covered by such regulation and also provides for exceptions to the prohibition in section 21, for instance where shares are offered to investment professionals and other categories of persons. Cryptoassets, such as Bitcoin and non-fungible tokens, are a new form of investment and the basis on which they can be marketed to consumers currently falls outside the scope of section 21 and the FPO 2005.
The government’s announcement is in response to feedback received on HM Treasury’s July 2020 Consultation. Respondents largely agreed that misleading advertising and a lack of suitable information means that there are currently risks to consumers who invest in cryptoassets. There is currently no timeframe for publishing the amended FPO 2005, but the government has confirmed that when this is published there will be a six month transition period to ensure compliance.
The government is proposing to amend the list of controlled investments in Schedule 1 FPO 2005, so that a new definition of ‘qualifying cryptoassets’ is added. This will result in most unregulated cryptoassets being brought within the scope of the FPO 2005. The definition will exclude electronic money (as defined in the Electronic Money Regulations 2011) and central bank currencies, but will cover any cryptographically secured digital representation of value or contractual rights which is fungible and transferable.
Schedule 1 FPO 2005 also sets out a list of controlled activities. The government is proposing to amend four existing controlled activities to capture activities which relate to qualifying cryptoassets. The government response also notes that the exemptions contained in the FPO 2005 from the financial promotion restriction in section 21 of the Financial Services and Markets Act 2000 will be applied to qualifying cryptoassets in a manner consistent with those for controlled investments.
Those involved in marketing and trading cryptoassets will need to prepare for the proposed new regulatory regime.
For further infomration or if you have anenquiry relating ot the above article, please contact Nuria Ashmore Barrios
(Corproate Solicitor) or Nick Williams