HM Treasury confirms tighter rules for financial promotions of crypto-assets | Shearman & Sterling LLP
Following its July 2020 consultation, the UK Treasury has published a response to the consultation on its proposals to change the UK financial promotion rules. These include changes to subject unregulated crypto-assets to the financial promotions regime. The response summarizes comments on the consultation and outlines how relevant crypto-asset promotions will be regulated. The government is proceeding with its proposal to bring qualifying crypto-assets within the scope of the Financial Promotion Ordinance as controlled investments. Eligible crypto-assets will be fungible (freely replaceable with another of a similar nature or nature) and transferable (which excludes crypto-assets in closed systems). E-money and central bank digital currencies will be excluded from the definition. Contrary to the initial proposal, the government has decided to remove the reference to distributed ledger technology from the definition of an eligible crypto-asset. The objective of this change is to perpetuate the definition of technological innovation.
HM Treasury does not intend to add any controlled activities to the Financial Promotion Order and considers that only the following activities will apply to qualifying crypto-assets:
- trading in securities and contractual investments
- enter into investment agreements
- investment management
- investment advice
- agree to engage in certain types of activity.
A proposed additional exemption for a seller declaring they are willing to accept or offer eligible crypto-assets in exchange for goods and services is dropped. HM Treasury chose not to add such an exemption because such a statement would not constitute an inducement to engage in investment activity and would therefore fall outside the scope of the Financial Promotion Order.
Following feedback, HM Treasury has decided to introduce a transitional period of six months from the finalization of the legislative measure and the publication of the rules of the UK Financial Conduct Authority. The FCA is expected to consult soon on its proposed rules to implement the changes.
Changes should be considered with the introduction of a regulatory gateway for the approval by authorized companies of financial promotions of unauthorized companies and proposals relating to the promotion of high-risk investments.