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Volume XII, Number 148

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UK Financial Conduct Authority Consults on Its Financial Promotion Rules for Cryptoassets and Other High-Risk Investments

On 19 January 2022, the UK Financial Conduct Authority (“FCA”) published a consultation paper (CP22/2) (the “Consultation”) setting out its proposals to strengthen its financial promotion rules for high-risk investments (including cryptoassets), as well as for authorised firms which approve and communicate such financial promotions. The Consultation builds on feedback received to its discussion paper (DP21/1) on how the FCA could strengthen financial promotion rules and also forms part of its ongoing work on addressing harm in the consumer investment sector, to pursue its Consumer Investments Strategy as published in September 2021.

The proposals set out in the Consultation relate to financial promotions for “high-risk investments,” being those which are subject to marketing restrictions under the FCA rules. This includes investment based-crowdfunding, peer-to-peer agreements, other non-readily realisable securities, non-mainstream pooled investments and speculative illiquid securities. The FCA has also confirmed that these will also include cryptoassets once they are brought into scope of the FCA’s financial promotions regime. Some of the key changes the FCA is seeking to implement, as set out in the Consultation, are as follows:

  • a rationalization of the rules set out in Chapter 4 of the FCA’s Conduct of Business Sourcebook (“COBS 4”), aimed at a clarification of what classifies as “high-risk investments” and the associated restrictions that apply;

  • changes to the “customer journey” in relation to high-risk investments, including a package of measures to strengthen risk warnings, ban inducements to invest, improve client categorisation and provide stronger appropriateness tests;

  • strengthening the financial promotion approval and communication regime, holding approvers of financial promotions to high standards; and

  • applying its financial promotion rules to qualifying cryptoassets, which will need to comply with the COBS 4 requirements.

The Consultation will be of interest to a wide range of market participants, including a number of firms in the “Fin-Tech” sector. Amongst others, this will include authorised firms that approve or communicate financial promotions, issuers of high-risk investments, certain financial advisers, asset managers and intermediaries, as well as firms operating in the crypto-asset market. The FCA is seeking feedback on its proposals by 23 March 2022 and intends to publish its policy statement and final rules in summer 2022.

© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 24
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About this Author

Kirsten Lapham FInancial Services Attorney Proskauer Rose Law Firm, United Kingdom
Partner

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of both institutional and individual clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues arising under the AIFMD, and MiFID II for a range of EU and indirectly impacted firms outside of the EU.

Experience in this area includes advising multiple clients on the EU marketing and registration regimes and overlaying local regulatory considerations, such as the U.K. retail distribution...

+44.20.7280.2031
John Verwey, UK, European Level, Finance, Attorney, Proskauer Rose Law Firm
Special Regulatory Counsel

John Verwey is a special regulatory counsel in the Corporate Department and a member of the Private Investment Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money Regulations, Payment Services Regulations and client money rules. He represents a variety of clients that range from private equity firms and insurance intermediaries to global investment banks and sovereign wealth funds. 

A particular area of focus for John is the implementation of...

+44.20.7280.2033
Amar Unadkat Corporate Lawyer Proskauer Rose Law Firm
Associate

Amar Unadkat is an associate in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of regulatory issues including AIFMD, PSD II and MiFID II, both in the UK and at European level.

His clients include investment fund managers, FinTech companies, wealth management businesses, crowdfunding businesses (including P2P lending platforms), banks and funds seeking to market to investors

+44.20.7280.2144
Associate

Michael Singh is an associate in the Corporate Department and a member of the Private Funds Group. Mr. Singh graduated from the University of South Wales in 2012.

+44.20.7280.2269
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