Cryptoassets and FinProm – HM Treasury consults on changes

On 20 July 2020, HM Treasury published a Consultation Paper on changes to the UK’s financial promotion (FinProm) regime when it comes to cryptoassets.

The consultation paper proposes amendments to the FinProm Order made under FSMA 2000 to address a key consumer protection issue, namely, the publication of unsuitable information to attract retail investors to the crypto market.

Bringing cryptoassets inside the UK’s FinProm framework would ensure the same standards of fairness, clarity and accuracy that apply to traditional financial assets and providers.

Since security tokens are already held to the same standards as other as traditional financial assets, HMT is proposing:

• that the financial promotion of utility and exchange tokens (which are the two primary classes of unregulated token) should be defined as ‘controlled investments’ under the FinProm Order;
• to extend the definition of ‘controlled activities’ under the FinProm Order to incorporate buying, selling, subscribing for or underwriting of qualifying cryptoassets; and
• an exemption to ensure that payment transactions for goods and services fall outside the scope of the FinProm Order.

The consultation period closes on 25 October 2020.

HMT will then consider responses received and set out its proposed policy. What is already clear, though, is that there will be no transitional period before the proposed amendments come into force since HMT expects that firms would have sufficient time to adjust their practices and comply before any resulting legislation comes into force.

This consultation should be read in the context of HMT’s Consultation Paper on financial promotions, published the same day.

See here for our summary of the second consultation.