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The UK Financial Conduct Authority (FCA) has revealed that it has issued warnings to 146 firms within the first 24 hours of its new crypto-asset promotion rules going live.
The firms are all unauthorised or unregistered by the FCA, and most are based in jurisdictions outside of the UK.
In a statement, the FCA said it expects third parties such as social media platforms, app stores, search engines, payment firms and domain name registrars to “play their part” in protecting consumers.
As per the new rules, firms that allow their products or services to broadcast, publish or communicate illegal promotions may also be breaking the law.
“The warning list will be continually updated as we identify firms [that] may be illegally communicating crypto-asset promotions and are failing to engage with us constructively,” said the FCA.
“We take a risk-based approach, so not all firms of potential concern will be added straight away.”
Huobi and KuCoin included in warning list
The two biggest names to appear on the warning list so far are global exchanges Huobi and KuCoin.
Huobi, which rebranded as HTX last month, was founded in China in 2013 and is now based in Seychelles. KuCoin was founded in Singapore in 2017 and is also based in Seychelles.
In its warning on Huobi, the FCA said that the exchange may be “promoting financial services or products without our permission.”
“You should avoid dealing with this firm,” the regulator added. “Firms and individuals cannot promote financial services in the UK without the necessary authorisation or approval.”
Huobi claims to have more than 45m accounts on its platform, and almost $3bn in daily trading volume.
When Huobi announced its rebrand in September, it said its shift to HTX, alongside the HTX.com domain name, is part of its “global expansion roadmap”.
“HTX is embarking on a growth strategy of ‘global expansion, thriving ecosystem, wealth effect, and security and compliance’,” it said.
Meanwhile, KuCoin claims to have more than 30m accounts in over 200 countries, and almost $1bn in daily trading volume.
Despite the scale of the platform, KuCoin only introduced mandatory know your customer (KYC) requirements as recently as August this year.
As firms that are unregistered and unauthorised to conduct crypto-asset business activity in the UK, both Huobi and KuCoin must either cease marketing to UK consumers or work with a third-party promotions approver.
As covered by Vixio, any FCA-registered firm that can demonstrate knowledge of the crypto-asset market can act as an approver for the promotions of other firms.
In the case of Binance, for example, the exchange is now working with Rebuildingsociety.com, a UK-based peer-to-peer (P2P) lending platform to approve its promotions.
Early warnings to be expected
In previous articles by Vixio, UK consultants and legal professionals had said they expected enforcement actions to “follow swiftly” after the new rules came into effect on October 8.
Bradley Rice, partner at Ashurst law firm, told Vixio that the promotion rules are the “biggest regulatory intervention to date” by the FCA in the crypto markets.
“The UK has not just moved the goalposts — it has picked them up and put them in a different field,” he said.
Speaking to Vixio on Monday (October 9), Rice said he is “not surprised” by the speed with which enforcement action has commenced.
"Some of these would have started before Sunday,” he said. “But these are only public warning notices against firms that presumably have not shown any indication they will comply with the new rules.
“Tougher enforcement action and some involving bigger names are probably going on in private, and more may follow further down the line if firms are not engaging or taking steps to comply."
In the run-up to the deadline, the FCA had also warned that mass enforcement action was likely to follow, due to “poor engagement” from unregistered, overseas firms.
David Rodriguez, crypto-asset specialist at financial consultancy Cosegic, said it was “naive” to expect all firms to comply with the new rules on cue, due to the last-minute nature of the FCA’s guidance and expectations.
However, he also said that of the 146 firms that received early warnings, there are bound to be bad actors among them that ought to be identified sooner rather than later.
“We need to keep in mind that within that list there will be a significant number of ‘rogue’ firms that may continue to try their luck by approaching customers in an unlawful way,” he told Vixio.
“In fact, it‘s not a secret that there are still a number of crypto firms operating illegally within the UK, so that just adds insult to injury.”
Rodriguez said there are also firms that see themselves as “untouchable” due to their incorporation overseas — a distinction which, in the case of the promotion rules, makes no difference.
As the FCA has stated, any firm anywhere in the world can find itself on the wrong side of the law if it communicates unlawful promotions that “have an effect” among UK consumers.
In other words, an overseas firm does not need to specifically target the UK market to fall foul of the rules.
For larger crypto firms, Rodriguez said they “should know better” by this point, and should not be caught in non-compliance, whether intentionally or through lack of awareness of the rules.
Going forward, he added that the bigger question will be around the most “challenging” of the new rules changes, namely those on direct offer financial promotions (DOFPs).
Given the number of back-end system changes that these rules require, registered firms have been offered deadline extensions until January 2024 to comply.
“Things may get a bit more interesting” when that time comes, said Rodriguez.
The DOFP rules cover 24-hour cooling-off periods, personalised risk warnings, client categorisation and appropriateness assessments.
