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After much guidance and complaints of “poor engagement” from the regulator, the UK’s “tough” new crypto-asset promotion rules officially came into effect on Sunday (October 8).
As of this date, firms that are unable to comply must cease marketing to UK customers. This includes both UK and overseas firms.
Failure to comply is now a criminal offence under the Financial Services and Markets Act 2000, and is punishable by up to two years’ imprisonment and/or an unlimited fine.
In the days leading up to the October 8 deadline, major crypto firms including Coinbase, Crypto.com and Binance announced changes to their UK platforms to comply with the new regulations.
Binance informed customers that it has partnered with Rebuildingsociety.com, an FCA-registered peer-to-peer (P2P) lending platform, to approve Binance’s crypto promotions beyond the deadline.
As covered by Vixio, there are now three ways for crypto firms to produce compliant promotions.
One is for a registered firm to communicate a promotion, and another is for a non-registered firm to create a promotion and a registered firm to approve it.
The final option is for a firm that is registered under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 to communicate a promotion.
Firms in the last group can only communicate their own promotions and cannot act as a third-party approver for the promotions of other firms.
Binance is neither FCA-registered nor registered under the MLRs, so it is now entirely dependent on Rebuildingsociety.com to approve its promotions.
In addition to the partnership, Binance has also announced the launch of a new UK web domain, Binance.com/en-gb.
International firms struggle with the new rules
As stated by the FCA, some international firms have found it challenging to restructure their operations to comply with the new rules.
“The least-prepared firms could not clearly explain which entity in their group would be communicating financial promotions to UK consumers,” the FCA said.
“This was particularly common in firms that use global websites and social media accounts.”
The FCA said these firms had relied on the fact that their promotions would not be “directed at” UK consumers, but they had no controls to prevent UK consumers from accessing the services in the promotion.
For a promotion to be in-scope of the rules, it only needs to “have an effect” in the UK, regardless of whether the promotion was intended to be seen by UK consumers.
“There was a real risk that the firms in their group structure running those global accounts would commit a criminal offence by promoting crypto-assets to UK consumers when the regime comes into force,” the FCA said.
The regulator added that the best-prepared firms had “clearly identified” which entity in their group would be communicating financial promotions to UK consumers.
“They had robust controls in place to prevent other firms in their group from communicating promotions to UK consumers,” it said.
Such controls include geo-blocking and know your customer (KYC) technology to ensure that UK consumers cannot subscribe to products that are not intended to be promoted or sold in the UK.
New rules push firms out of the UK
As the deadline neared, a number of international firms announced plans to suspend or withdraw their services from the UK.
The first was PayPal, which in August announced that crypto purchases would be paused for UK consumers from October 1 until early 2024.
PayPal was then joined by Bybit, Luno and Nexo, all of whom said they would be withdrawing from the UK or suspending certain services for UK users as the new rules came into effect.
Like Binance, all four firms are unregistered for conducting crypto-asset business activity in the UK and would have to rely on a registered third party to approve their promotions.
Bradley Rice, financial regulatory partner at Ashurst law firm, said he is not surprised to see that some firms have de-risked from the UK ahead of the deadline.
"These changes are the biggest regulatory intervention in the crypto markets in the UK to date,” he told Vixio.
“The UK has not just moved the goalposts — it has picked them up and put them in a different field.”
Rice added that firms’ preparations for the requirements have been “hit and miss”, leading the FCA to publish its “good and poor practice” feedback alongside other warnings and reminders.
“We expect some enforcement action will follow pretty swiftly after October 9," said Rice.
“Implementing these changes requires significant legal, compliance, marketing, engineering and senior management engagement and oversight.”
Since the FCA did not publish the finalised rules until June 8, exactly four months before the deadline, Rice said it was to be expected that certain firms were offered extensions for certain rules.
Last month, as covered by Vixio, the Financial Conduct Authority (FCA) announced that registered firms struggling to meet the October 8 deadline could apply for a “modification by consent” order.
If granted, the order gave registered firms an extra three months to comply with the most “challenging” requirements.
These require changes to a firm’s back-end systems, to introduce features such as 24-hour cooling-off periods, personalised risk warnings, client categorisation and client appropriateness.
