Do you Need to Register With the FCA for Carrying on Cryptoasset Activity?

This article will take a look at whether companies within the crypto sphere need to register with the FCA, along with the new changes that are being brought into effect by the FCA.

The crypto landscape in the UK is enduring a unique period in time, with crypto quickly becoming finally understood, and even accepted. But, that has brought with it greater regulation, with the Financial Conduct Authority (FCA) introducing pivotal changes that businesses need to be aware of.

This article will take a look at whether companies within the crypto sphere need to register with the FCA, along with the new changes that are being brought into effect by the FCA.

The New Landscape of Cryptoasset Promotion in the UK

The UK—or rather, London—has always been at the forefront of financial innovation, and the crypto sector is no exception. However, it’s not just finance and technology that the UK spearheads innovation in, but also innovation in regulating these environments to ensure consumer protection and maintain the world-class integrity of financial markets.

Starting from 8 October 2023, any entity wishing to promote a cryptoasset in the UK will need to either be authorised by the FCA or have their promotions approved by an authorised entity. This is a significant departure from the previous laissez-faire approach, bringing crypto Cryptoasset promotion UK in line with other financial advertisements.

The intent is clear: to ensure that consumers are provided with accurate, clear, and non-misleading information, thereby fostering trust in this burgeoning sector.

Cryptoassets are proposed to be classified as ‘Restricted Mass Market Investments’. This allows them to be marketed to UK consumers but under specific guidelines. Some of the restrictions involve banning certain investment incentives and ensuring clear risk warnings, along with client categorisation requirements.

Examples of Prohibited Behaviour

One example may be that a firm might be mandated to explicitly state the volatility risks of a particular cryptoasset or be prohibited from offering bonuses for early investments.  Firms are now expected to introduce a 24-hour cooling-off period for first-time investors too. This means that after making an initial investment, investors have a 24-hour window to reconsider and potentially reverse their decision, providing an added layer of protection against impulsive investment decisions.

Firms, even those overseas, marketing cryptoassets to UK consumers must adhere to these rules or face potential action from the FCA.

Understanding the "Approved Person" Concept

Amongst the complexity of financial regulations, the term "approved person" stands out. An approved person is an individual or entity that has been vetted and authorised by the FCA to perform specific roles or functions.

This isn't just a rubber stamp, it's a rigorous process where the FCA assesses the competence and integrity of the applicant. Approved person advantages mean that someone will be able to carry out activities on behalf of a firm and get cryptoasset promotion sign-off.

In the context of crypto promotions, an approved person can be a game-changer, offering a seal of credibility and assurance that the promotion meets the stringent standards set by the FCA.

Whilst Englebert is still in the process of being approved, we can still offer support in the meantime to help prepare promotions for the new regime. Having experienced and expert help can drastically improve your chances of staying FCA compliant, particularly during times of vast regulatory changes.

The Edge of Collaborating With an Approved Person

Navigating regulations that appear to be a great wall of text can be intimidating, especially with the knowledge that a significant percentage of applications to the FCA don't make the cut. This is where an approved person steps in, offering a variety of advantages:

  • Expert Guidance: with their in-depth knowledge of FCA requirements, approved persons can provide invaluable insights, ensuring that promotions are compliant and effective
  • Efficiency Boost: leveraging the expertise of an approved person can accelerate the approval process, saving precious time and resources
  • Risk Mitigation: non-compliance can lead to hefty penalties and reputational damage. Collaborating with an approved person significantly reduces these risks, offering peace of mind

In the world of crypto, staying ahead of regulatory changes is a prerequisite for long-run survival. By understanding the new FCA regulations and the value of partnering with an approved person, businesses can position themselves for success in the UK's dynamic crypto market.

Challenges for International Cryptoasset Businesses

The global nature of the crypto industry means that many businesses operating in the UK originate from overseas. For these international entities, the new FCA regulations present unique challenges. Without an established presence in the UK, several promotional avenues become inaccessible.

The pool of entities that can approve promotions is limited. To be an approver, one needs not only in-depth product knowledge but also specific permissions from the FCA. This can be a significant hurdle for overseas businesses that may not have good local knowledge or connections.

Additionally, the UK's stringent standards mean that promotions tailored for other markets might not pass in the UK. Differences in regulatory environments, consumer expectations, and market dynamics now require a tailored approach for the UK audience. For international businesses, this might mean revisiting and revising their promotional strategies, ensuring they align with UK standards while still resonating with their target audience.

Preparing for the Regulatory Future

The introduction of these regulations underscores the UK's commitment to ensuring a safe and transparent crypto market. For businesses, preparation and training is key. This involves not just understanding the letter of the law but also the spirit behind it. In other words, the point isn’t to narrowly and minimally escape non-compliance. The FCA's regulations aim to protect consumers, but compliance, in turn, also protects businesses.

To this end, businesses should consider proactive measures. This includes continuous training to ensure teams are updated on the latest regulations, investing in legal counsel specialising in UK crypto regulations, and looking to approved persons to help navigate compliance.

Whilst Englebert is awaiting approval, in the meantime, we can still offer our clients expert support and guidance when preparing new promotions in the face of these new regulatory changes.

In conclusion, while the path ahead might seem challenging, with the right preparation and mindset, businesses can not only navigate the regulatory landscape but also thrive, setting themselves apart in a competitive market.

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