Protecting consumers in the age of digital currency

Regulatory regimes for the crypto industry have historically been somewhat limited, with inconsistency across jurisdictions. However, the landscape is evolving with new legislation passed both in the UK and the EU in 2023, and more anticipated for 2024. Whilst it might seem reasonable to assume that this regulation will apply solely to cryptocurrency businesses, third-parties could also be affected and must take appropriate steps to mitigate risk.

The Financial Services and Markets Act 2023, passed in June 2023, now requires cryptoasset firms to be fully authorised by the FCA (or otherwise exempt by legislation), and subject to the extensive regulations set out in the FCA Handbook.

The subsequent implementation of the FCA's new cryptoassets financial promotions regime in October 2023, mandated four routes to lawfully communicate cryptoassets promotions to UK consumers (read more about the regime here). The aim of the new regime is to ensure that UK consumers are provided with fair and accurate information before they decide to invest in cryptoassets, which the FCA has always considered higher risk instruments, allowing them to make a more informed investment decision.

The new regime has the potential to be far-reaching. For example, intermediaries such as social media platforms, search engines, app stores, domain name registrars and digital payment firms can all be caught by the new regulations. This includes criminal sanctions, as facilitating illegal cryptoasset promotions on their platform can incur liability to repay any consequential income generated under the Proceeds of Crime Act 2002 (POCA). Therefore, even though not making the promotions themselves, intermediaries are at risk of dealing with criminal property and committing money laundering offences. Read more about the penalties for non-compliance here.

In summary, businesses that are not regulated by the FCA or PRA and which promote cryptoassets (or even intermediaries that facilitate such promotions) need to ensure that their promotions are authorised by one of the four methods outlined here. We recommend obtaining legal advice as far in advance of releasing the promotion as possible.