5 minute read | January.21.2022
On 19 January, 2022, the FCA published its consultation on strengthening its financial promotion rules for high-risk investments, including cryptoassets (CP22/2). The consultation proposes some fairly onerous requirements and we expect that many of our clients will want to respond to this paper. We’ve summarised some of the key changes being proposed below.
1. Classification of high-risk investments.
Following feedback that the COBS 4 rules were challenging to navigate and understand, the FCA proposes to rationalise the COBS 4 rules as follows:
New category | Investments included | Mass marketing rules |
“restricted mass market investments” (RMMIs) |
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Mass marketing will be allowed to retail investors subject to certain restrictions |
“non-mass market investments” (NMMIs) |
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Mass marketing will be banned to retail investors |
2. Consumer journey into high-risk investments.
The FCA explain in the consultation that it is concerned that too many consumers are just “clicking through” and accessing high-risk investments without understanding the risks involved. The FCA’s existing marketing restrictions are intended to ensure consumers only access high-risk investments knowingly, however, the FCA state that consumer research shows this approach is not working as well as it could.
The FCA proposals include:
Cryptoasset firms should note that these new rules will also apply to promotions of qualifying cryptoassets.
3. Strengthening the role of firms approving and communicating financial promotions.
Last year, the Treasury confirmed that it intends to amend the financial promotion approval regime by establishing a regulatory gateway for the approval of financial promotions made by unauthorised persons. The current financial promotion regime will be amended so that financial promotions made by unauthorised persons can only be approved by certain regulated firms that have been given permission by the FCA to approve financial promotions of unauthorised firms.
In addition to the new regulatory gateway, the FCA wants to strengthen the role of a section 21 approver (a regulated firm that approves financial promotions for others) as it believes that they play an important role in enabling unauthorised issuers of high-risk investments to reach consumers. The regulator states that it wants to develop a robust regime to complement the proposed section 21 gateway which, when implemented, will hold section 21 approvers to high standards. The proposals include:
4. Applying financial promotion rules to qualifying cryptoassets.
Following the government confirming that it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets, the FCA is consulting on how it will categorise these cryptoassets once they are brought into the financial promotion regime.
The FCA intends to generally apply the same rules to cryptoassets as currently applied to non-readily realisable securities and P2P agreements. However, it is important to note that the proposals state that it should not be possible for ‘direct offer’ financial promotions of qualifying cryptoassets to be made to self-certified sophisticated investors. Financial promotions relating to cryptoassets will need to comply with COBS 4.
The consultation closes for comments on 23 March, 2022 and the FCA intends to confirm its final rules this summer 2022.
Firms will have three months from the FCA publishing the final rules to comply with the new requirements for the consumer journey and for section 21 approvers. The cryptoasset promotion changes will apply from the date that qualifying cryptoassets are brought within the financial promotion regime.