Blog
FCA sharpens focus on crypto cowboys
Jill Lorimer
The Government has now launched a consultation seeking views on its proposal to bring certain types of cryptoassets within the scope of the financial promotions regulation regime, in recognition that promotions and advertising play an important role in financial decisions made by individuals. This consultation is being run alongside a second consultation on proposed amendments to the regulatory framework for the approval of financial promotions generally.
The restriction on financial promotions is contained within section 21 of Financial Services and Market Act (FSMA) 2000 which provides that:
A person will be engaging in ‘investment activity’ for the purposes of section 21 FSMA if they:
The list of controlled activities and investments are contained in Schedule 1 to the FSMA 2000 (Financial Promotion) Order 2005 (the Financial Promotion Order).
There are exemptions to the restriction on financial promotions; including promotions by authorised people or promotions by unauthorised people which are approved by an authorised person. Failure to comply with section 21 FSMA is a criminal offence which carries a maximum sentence of two years’ imprisonment.
In the UK the FCA regulate cryptoassets in two ways: they are the anti-money laundering and counter-terrorist financing supervisor for businesses carrying out certain cryptoasset activities and they are also the conduct regulator for businesses which carry out activities involving certain types of cryptoassets.
As of January this year, businesses which carry on cryptoasset activity must now ensure they comply with the UK’s anti-money laundering regime as other financial institutions do. This includes exchanges, ATMs, peer-to-peer providers, issuers of new cryptoassets (for example Initial Coin Offerings), publishers of certain open-source software (for example non-custodian wallet providers) and custodian wallet providers. Please see our blog ‘The (quiet) extension of the AML regime: an overview’ for details of the new regulations.
Related to this, on 22 July, the Joint Money Laundering Steering Group (JMLSG) updated its sectoral guidance on prevention of money laundering / combating terrorist financing for the financial services sector to include cryptoasset exchange providers and custodian wallet providers.
At present the only categories of cryptoassets which fall within the FCA’s regulatory perimeter and therefore require a business to obtain authorisation are security tokens and e-money tokens. Some investment products such as derivative contracts that reference cryptoassets are likely to also fall within the perimeter (even if the underlying cryptoassets are unregulated as below).
Security tokens and e-money tokens are already subject to the financial promotions regime by virtue of their regulated status. The Government now proposes to place other unregulated cryptoassets within the grasp of the restrictions on promotion by adding the category of ‘qualifying cryptoassets’ to the list of controlled investments under the Financial Promotion Order. A ‘qualifying cryptoasset’ would be defined as:
“any cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and which —
(a) is fungible; (this means it is freely replaceable by another of a similar nature or kind);
(b) is transferable or confers transferable rights, or is promoted as being transferable or as conferring transferable rights;
(c) is not any other controlled investment as described in this Part;
(d) is not electronic money within the meaning given in the Electronic Money Regulations 2011; and
(e) is not currency issued by a central bank or other public authority.”
The list of controlled activities under the Financial Promotions Order would also be amended to include activities in relation to the buying, selling, subscribing for or underwriting of these ‘qualifying cryptoassets’.
Finally the Government proposes to add a new exemption to the Financial Promotions Order which would ensure vendors merely offering to accept cryptoassets in exchange for their goods or services, and buyers merely offering cryptoassets to pay for goods and services, in the same manner as they would accept pound sterling payments, are not captured under the regime.
In its 2020 budget the Government committed to consulting on the UK’s broader regulatory approach to the cryptoasset market later in the year. This could include expansion of the scope of the Regulated Activities Order in order to bring further types of cryptoasset within the FCA’s regulatory perimeter. The Government however has been careful to emphasise the need for ‘further analysis of the market to fully assess its distinctive and still-evolving technological features and risks.’
In any event the growing interest in cryptoassets (in the last week alone Bitcoin has risen over 11% in value and Mastercard has expanded its cryptocurrency programme) can only lead to greater regulation.
Our team of specialist cryptoasset lawyers bring together legal expertise from multiple disciplines across the firm, including our corporate and commercial, regulatory, dispute resolution, criminal, family and employment practices. Please contact us if you require any further information or assistance, or read further blogs on cryptoassets here.
Jill Lorimer is a Partner in the Criminal Litigation team and has an extensive track record in advising firms and individuals facing regulatory and criminal investigations by the FCA. Jill has particular expertise in advising firms who are, or who may be, under the scrutiny of the FCA and in taking a proactive approach to head off potentially adverse action.
The increase in the value of cryptoassets has undoubtedly contributed to the continued interest and adoption of this still relatively new asset class across organisations and individuals. The ease of purchasing, selling or transferring a cryptoasset has improved significantly over the last few years (and which has in part stemmed from the development of the regulatory environment). However, there is still a technical barrier to entry. This presents a practical problem; if your assets pass to your loved ones on your death, how do you ensure that they are able to actually access and benefit from any cryptoassets that you hold?
This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period of January - March 2023.
The courts are set to address whether software developers of Bitcoin networks owe fiduciary duties to bitcoin owners following the Court of Appeal’s decision in Tulip Trading Limited v Van der Laan & Ors, where it allowed the claim to proceed. The case is poised to be a landmark for future crypto-disputes as it seeks to address several important points in this uncertain and developing area of law.
Amid increased focus on the regulation of cryptoassets in the UK, law enforcement agencies have carried out unprecedented raids targeting illegally-operated cryptocurrency ATMs.
The ‘metaverse’ is one of the most hyped, and simultaneously poorly defined, concepts of the ‘new age’ of the internet’s evolution. To a certain extent a result of the vision promoted by Mark Zuckerberg when announcing Facebook’s pivot and rebranding to become ‘Meta’, the term conjures up images of fantastical worlds populated by other-worldly avatars.
This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period July - September 2022.
Connie Atkinson was published in the October 2022 edition of ThoughtLeaders4 HNW Divorce magazine discussing the rise of cryptoassets in financial remedies.
James Alleyne was recently asked to talk to an international audience in London about the UK’s position on regulating the crypto-space.
The FCA’s transformation to becoming an assertive, front footed regulator has been accelerated by three recent developments, all of which prioritise the protection of consumers.
The English High Court, in Mr Dollar Bill Limited v Persons Unknown and Others [2021] EWHC 2718 (Ch), has once again come to the rescue for victims of fraud – this time armed with a Norwich Pharmacal Order to be served outside the jurisdiction.
In March 2021 Twitter founder Jack Dorsey sold his very first Tweet as an NFT for $2.9 million. Around the same time the Land Registry ran a series of pilots to explore the possibility of using blockchain technology, such as NFTs, to provide some much needed modernisation and efficiency to the property buying process.
On 10 January 2020, the Financial Conduct Authority (FCA) became the anti-money laundering (AML) and counter-terrorist financing (CTF) supervisor for UK cryptoasset firms. Two years in, how effectively is it performing its role as the gatekeeper of the new registration regime?
With the price of crypto assets generally making a good recovery from the Covid-19 related decline of 2019 contrasted with the very recent volatility following issues with the adoption of the cryptocurrency as legal tender in El Salvador, investors in cryptocurrencies might be considering realising some of their gains to try to help minimise any further instability.
The Financial Conduct Authority (FCA), in its annual business plan published today, sets out its areas of focus for the year ahead. It is, as ever, essential reading for all those in the regulated sector.
For the fourth year the FCA has published research on the changing relationship between consumers and cryptoassets. In spite of the pandemic, the strong upward trend in public engagement and media coverage has continued, with the FCA estimating 2.3 million adults now hold cryptoassets.
A Director at the National Crime Agency recently voiced concern about crypto assets being used to fund property purchases in the UK. The NCA’s Nigel Leary was quoted by The Times as saying: “Anything purchased with crypto assets I’d be slightly sceptical about. I’d like to see why they’re being done in that way and what the requirement is for that anonymity, and why it needed to be done in a crypto transaction.”
The price of Bitcoin and other crypto assets is notoriously unstable. Whether caused by a cryptic crypto related tweet from a billionaire inventor, or a crypto crackdown being announced by regulators of the world’s second largest economy, the rise and fall of crypto assets continues to prove that crypto can be risky business.
Despite the Covid-19 pandemic, 2020 was an incredible year for crypto assets. Largely driven by the increased demand from institutional investors, Bitcoin shattered its previous price records. However, its pseudonymous nature and the ease with which it allows users to instantly send funds anywhere in the world makes crypto assets appealing to criminals.
Hot on the heels of its consultation on bringing cryptoasset inside the scope of the financial promotions regime at the tail end of last year, the FCA has launched a further consultation on the UK’s regulatory approach to cryptoassets and stablecoins.
As of 10 January 2021, all cryptoasset firms are required to be registered with the Financial Conduct Authority (FCA) under the Money Laundering Regulations.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
Jill Lorimer
Mary Young
Skip to content Home About Us Insights Services Contact Accessibility
Share insightLinkedIn X Facebook Email to a friend Print