Financial Promotions Regulations In The United Kingdom Have Been Revived, Including Crypto Assets

Misselling scandals have plagued UK financial services over the last two decades, with the wrong goods being sold to the wrong customers at the wrong time. "We've learned a lot," authorities said, with a warning of more harsh action in the future.

Prior to 2021, HM Treasury and the Financial Conduct Authority (FCA) launched a slew of related efforts aiming at correcting identified flaws in previous regulations. They constitute a major overhaul of financial promotion regulations, and while they are mainly intended for retail customers, wholesale enterprises should take notice of the key provisions included in these regulations.

How Financial Promotions Are Regulated

Financial promotion regulations for certain unregulated crypto-assets will be tightened, according to HM Treasury. These "qualified crypto-assets" will be placed under the FPO's oversight as controlled investments, making them subject to the U.K.'s financial promotion guidelines. However, this would not modify the FCA's existing guidance on where some crypto-assets are inside the financial regulatory perimeter and for which authorization would be necessary. Only uncontrolled crypto-assets are of interest to HM Treasury.

According to the government's revised definition of a crypto-asset, the term "distributed ledger technology" has been dropped. As a result of this, technological innovation will have a clear meaning in the future. This is also true in the case of Forex trading. FCA, which is a reputable regulator of the foreign exchange market and controls the promotions for traders like AvaTrade bonus and similar campaigns, will now take additional measures in order to protect investors from malpractice. There are no plans to expand the FPO's list of restricted activities, according to Treasury officials, who believe that the existing list is reflective of what crypto-asset enterprises in the United Kingdom perform. Financial promotion restrictions are to be applied to all crypto-assets, however, not all of these actions are applicable to crypto-assets. 

The forms of exemptions for eligible crypto-assets have been announced by HM Treasury. Promotions made to investment experts, journalists, and international beneficiaries are excluded from Part IV of the FPO, which covers all restricted activities and all qualified crypto assets. High-net-worth people and self-certified sophisticated investors, according to HM Treasury, are not eligible for the Part VI exemptions since the exemptions only apply to investments mentioned in the FPO.

An additional exception for a seller saying that it is prepared to accept or provide qualified crypto-assets in return for goods and services has been withdrawn. To avoid invoking the FPO, HM Treasury has decided against including any such exception, reasoning that it would not be an encouragement to engage in investment activities.

Financial Promotions And Unauthorized Firms

There are strict restrictions in place in the United Kingdom regarding financial promotion, which state that unless the communication is exempt, the company is regulated or the communication is permitted by an official financial institution, no financial promotion may be communicated. It is only possible for an authorized person to approve financial promotions that are not "real-time" (such as those that are said during phone conversations, meetings, or online chats), and any permission must conform with the FCA's financial promotion standards.

According to HM Treasury,  the regulatory gateway for authorization of financial marketing by unlicensed enterprises will be implemented. If this is the case, then regulated businesses will be prohibited from allowing financial promotions from unregulated firms unless an application is made for the restriction to be waived in whole or in part. Legislation modifying the FSMA will be used to implement the change. In the first instance, authorized firms that approve financial promotions for unregulated firms within their group will be exempt from the rule; in the second instance, principals who approve financial promotions for their appointed representatives in connection with regulated activities will be exempt from the rule as well.

The Financial Conduct Authority (FCA) is proposing to alter its regulations on the authorization of financial promotions by licensed businesses, including, among other things:

• All financial advertising should be required to contain a date stamp. Additional instructions will be issued by the FCA about the use of the authorizing firm's brand name in financial advertising, including:

• Require enterprises to self-assess before authorizing or transmitting a financial promotion to see whether they have the required competence and knowledge in an investment product or service. A company would have to think about whether or not it has the required experience and/or credentials in the industry, as well as the past job history and qualifications of the persons responsible for the approval of promotions.

• Each authorized financial promotion would require firms to keep track of how they achieve the requirements. 

• Firms will be required to take reasonable steps in order to monitor the ongoing compliance of approved promotions, and they will be required to collect attestations of "no material change" from customers with approved promotions every three months as part of the FCA's consideration of stronger rules to ensure compliance with financial promotions. The new duties would be burdensome for businesses, but they will be advantageous to individual investors.

Companies will be given three months following the publication of the final rules by the FCA to implement the new regulations.