FCA Publishes Review of Cryptoasset Financial Promotions

The Financial Conduct Authority (FCA) has published a report on its findings and expectations for firms promoting cryptoassets to retail consumers. The report follows the implementation of the FCA's rules for cryptoasset financial promotions, which were introduced in October 2023.

The following key areas from the financial promotion rules are highlighted in the review:

• Cooling-off period: Firms must allow a minimum of 24 hours for consumers to reflect on the investment before they receive a direct offer financial promotion (DOFP). The FCA found that some firms did not provide clear information on the reason and duration of the cooling-off period, or did not give consumers the option to proceed or leave the journey with equal prominence.
• Personalised risk warnings: Firms must provide a personalised risk warning to consumers before they receive a DOFP, which must include the consumer's name, a risk warning, and a link to a risk summary. The FCA found that some firms gave the personalised risk warning later in the journey, did not meet the prominence requirements, or used language that encouraged consumers to proceed.
• Client categorisation: Firms must take reasonable steps to classify a consumer as a Restricted, High Net Worth or Certificated Sophisticated investor before communicating a DOFP to them. The FCA found that some firms failed to correctly explain the categories, guided consumers to select a category that did not reflect their circumstances, or offered categories that were not applicable.
• Appropriateness: Firms are required to assess whether the cryptoasset is appropriate for the consumer, having regard to whether their experience and knowledge are sufficient to understand the relevant risks. This evaluation is required before processing an application or order in response to a DOFP. The FCA found that some firms used the appropriateness assessment as an educational tool, asked leading or simplistic questions, or did not cover all relevant topics or risks for the cryptoassets.
• Record-keeping: Firms are expected to record specific information captured during the customer journey. The FCA found that all of the firms in their sample were doing so, but some firms did not have a clear plan of how to use the data to improve the customer journey or verify the accuracy of the data.
• Due diligence: Firms must conduct due diligence on the cryptoasset or service being promoted and the claims made in the promotion. The FCA found that some firms did not conduct due diligence, did not consider a wide range of factors or sources, or did not use the due diligence to inform their decision-making or disclosure to consumers. The FCA also found that some firms did not make use of the outputs, other than as part of a binary decision on whether to offer the relevant cryptoassets. Another problem uncovered through the review was inadequate due diligence on cryptoassets that claim a form of stability, such as stablecoins.

The FCA has used the review to illustrate its expectations and give firms an opportunity to make any necessary changes to their practices. At the same time, it is clear that it is prepared to use its enforcement powers where actions are not taken to bring firms into compliance.