Guidance for crypto firms to help them comply with marketing rules

Following a corresponding consultation in June this year (EventID 21586), the Financial Conduct Authority (FCA) has now published a new guidance (FG23/3) as regards financial promotions for cryptoassets. The guidance aims to assist firms in developing promotions that are „fair, clear, and not misleading“ and support registered firms approving financial promotions in their evaluation of the appropriateness of such promotions. The guidance thereby addresses the following key issues:
General issues pertaining to the promotion of cryptoassets
– It describes the requirements of firms seeking to approve financial promotions (beginning February 2024, all firms approving financial promotions must themselves have been approved by the FCA).
– It describes the cases when financial promotions for cryptoassets have to be approved (the firm is not registered with the FCA or otherwise exempt from the financial promotion restriction).
– And, it outlines the rules and principles that apply when communicating or approving financial promotions.
Issues to be considered to meet the „fair, clear, and not misleading“ requirement of the FCA:
– Promotions should be clear, easily understood, and avoid complex language. Important information should be displayed prominently in the marketing material.
– Promotions should not downplay the risks of investing in cryptoassets or take advantage of consumers‘ lack of knowledge.
– Firms should present a balanced view of potential risks and rewards associated with cryptoassets, avoiding excessive focus on benefits.
– Firms should avoid making exaggerated claims about the benefits of cryptoassets that do not reflect realistic consumer expectations.
– Firms should not leave out information that affects consumers‘ ability to make informed investment decisions.
– All information, including facts and figures, should be accurate and substantiated.
– When discussing past performance, firms must include a risk warning that it’s not a reliable indicator of future results. Future performance information should be based on reasonable assumptions and reflect different market conditions.
– Promotions should clearly outline ALL associated costs, fees, and charges in a transparent manner.
– Firms must have systems in place to monitor compliance with the rules and be ready to amend or withdraw promotions in response to market developments or other events affecting the adequacy of their promotions.
– Firms should refrain from using terms such as ‘guaranteed’, ‘protected’, or ‘secure’ in their promotions unless such claims can be substantiated.
The guidance also outlines issues to consider when communicating or approving communications of cryptoassets that are considered somewhat „stable“ because their value is tied to a referenced fiat currency (stablecoins), those that are backed by a commodity or asset, and those with complex yield cryptoasset models. In this context, it may be noted that due diligence of particular relevance and – in case of cryptoassets backed by another asset – firms should ensure to be able to verify the tie to the underlying asset, e.g by providing „evidence of any custodian responsible for the underlying asset and details of the underlying custody agreement, including where the commodity or asset is held“.
Finally, the guidance deals with financial promotions via social media. Here, the FCA notes that firms should refer to the Authority’s financial promotions on social media (FG15/4), but should particularly consider the following two aspects:
1. Firms should consider equality and diversity issues which includes the assessment of accessibility and the language used in promotions via social media.
2. Individuals promoting financial products or services on social media, including influencers („finfluencers“), are required to disclose any relevant commercial relationships. This includes disclosing if they have been paid or commissioned to promote a cryptoasset or cryptoasset service.
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To conclude, the FCA notes that the guidance is not exhaustive and does not detail all the issues necessary to consider for financial promotions to be „fair, clear, and not misleading“. It is the obligation of firms to take all reasonable steps to ascertain the appropriateness of financial promotions and their compliance with the new financial promotion regime as set out in policy statement PS23/6.