This is the culmination of a year-long effort in the U.K. government to create new rules to govern cryptocurrency business within its borders, said Preston Byrne, a corporate partner and practitioner in Brown Rudnick’s Digital Commerce group.
The U.K. Financial Conduct Authority (FCA) recently announced proposed rules on financial promotion of crypto-assets within the country, following the passage of the U.K. Financial Services and Markets Act 2023 (the 2023 Act). This Act brings crypto-assets under the U.K.’s broader financial regulatory regime contained in the U.K. Financial Services and Markets Act 2000 (FSMA), including FSMA’s rules on financial promotions. The new rules are expected to enter into force on or about October 8.
The 2023 Act folds certain types of regulated activities, like arranging deals in or managing investments when crypto is the underlying product, into the FCA’s regulatory scheme. It also grants additional powers under a new Designated Activities Regime to impose crypto-specific rules and restrictions on the industry. Most relevant for cryptocurrency developers are the changes which bring cryptocurrency marketing fully under the existing financial promotions regime.
Generally speaking, in the U.K., one is not allowed to communicate an invitation or inducement to engage in investment activity in the course of business to a prospective customer unless conducted or approved via a regulated entity, or an exemption applies. Regulated entities under the new regime for crypto include FCA-authorized firms, registered crypto-asset firms, or authorized firms which have passed through regulatory gateway legislation.
The new rules make no distinction between ICO-based crypto assets and cryptocurrencies generally regarded as decentralized and not subject to much regulation even in the United States. This means that, say, a cryptocurrency ATM might need an FCA-authorized firm to review the marketing copy it displays on its user interface.
The bargain that appears to be emerging in the U.K. is that the price of freedom to develop and trade crypto is tight regulation on how it is marketed to consumers. Developers and issuers should still consider the U.K. open for business, although they will need to approach doing business in the U.K. and with U.K. consumers with considerably more care than before.