PS23/6: Financial promotion rules for cryptoassets

Following a consultation (CP22/2) on enhanced promotion rules for high risk investments, including cryptoassets, in 2022 and the publication of a corresponding policy statement (PS22/10) for all instruments except for cryptoassets, the Financial Conduct Authority, FCA, has now published a second policy statement (PS23/6) covering just those cryptoassets.
In its now issued statement, the FCA outlines the responses it has received to its consultation concerning cryptoassets and the „near final“ rules as they are likely to be implemented shortly. In view of the feedback from commenters, the FCA has made some revisions to the proposed rule changes which will be further described below.
To recall, the FCA proposed to make several far-reaching modifications to its Handbook concerning the classification of „high-risk products“, the access to and promotion of such products, and the qualifications of firms offering high-risk investments and the standards they adhere to. The regulator also proposed to integrate crypto-assets in the existing marketing regime with some product specific changes to prevent mis-investment. The objective of the proposed rule amendments was to facilitate retail investors access to „higher-risk“ products, while – at the same time – upholding the utmost standards on investor protection. A detailed description of the proposed amendments may be found in EventID #14227.
In its final policy statement – which does not cover any issues around other investments due to their coverage in the fist policy statement (PS22/10) – the FCA basically states that it will go forward as proposed with some modifications. That means that cryptoassets will be categorized as Restricted
Mass Market Investments to which the outlined restrictions and requirements as regards consumer marketing will apply.
The main changes to the draft version are the following:
(1) risk warnings and risk summaries: in this context, the FCA notes that the risk warning will be shorter so as to enhance „first glance“ inspection. It will simply state: „Consumers should not expect to be protected by the FSCS or the ombudsman service if something goes wrong“ in their cryptoassets investments. Firms may also alter their risk summaries, if such modifications are useful for clarification purposes and to prevent misinformation. Also, the FCA will permit the description of different risks currently not contained in the template.
(2) cooling-off period: The FCA will clarify that the 24-hour cooling-off period for a consumer starts when he or she requests to view the Direct Offer Financial Promotion. During this period, firms are allowed to continue with other parts of the consumer journey, including Know Your Customer/Anti-Money Laundering (KYC/AML) checks, client categorization, and the appropriateness assessment. If these processes take longer than 24 hours, firms do not have to introduce an additional pause in the consumer journey. However, the consumer still needs to provide active consent if they wish to proceed with the investment.
(3) client categorization: The FCA will clarify that figures on income and net assets for purposes of evaluating a client’s „high net worth status“ may be rounded to the nearest £10,000/£100,000, respectively. Also, the FCA will issue guidance on its expectations as to which measures firms shall apply to verify the information provided by their customers in the investor declaration. And finally: the self-certified sophisticated investor category will NOT be implemented to ensure sufficient investor protection.
(4) appropriateness tests: the Authority will now implement a final rule to provide a „cooling-off period“ of 24 hours for investors to take the appropriateness test again. The test is used to assess investors‘ know-how, experience, and other relevant factors to determine whether or not crypotassets are adequate investments. This rule will apply from the second test onward.
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As these are only the key modifications to the proposed enhancements, please refer to the original policy statement for more detailed, comprehensive information.