Fintech, Digital Assets, Payments and Consumer Credit | UK Regulatory Outlook November 2023

UK cryptoasset regulation

HM Treasury update on regulatory approach to cryptoassets

On 30 October 2023, HM Treasury published a formal response on its proposals for the future financial services regulatory regime for cryptoassets.

In the response, HM Treasury confirms that it intends to bring the financial services regulation of cryptoassets within the regulatory framework established by the Financial Services and Markets Act 2000 (FSMA). In particular, it will expand the list of specified investments in the Regulated Activities Order, and require firms undertaking relevant activities involving cryptoassets by way of business to be authorised by the Financial Conduct Authority (FCA).

In the response, HM Treasury considers issues including:

• the definition of cryptoassets;
• market access arrangements;
• the new regulated activities; and
• the new market abuse regime.

HM Treasury also sets out its policy on issues raised in the call for evidence relating to decentralised finance, the regulation of other cryptoasset activities (including investment advice and staking) and sustainability.

FCA finalised guidance on cryptoasset financial promotions

The cryptoasset financial promotion regime came into force on 8 October 2023. On 2 November 2023, the FCA published finalised non-Handbook guidance providing information on, and setting out the regulator's expectations of, the communication and approval of financial promotions relating to qualifying cryptoassets.

The guidance applies to authorised persons and persons registered with the FCA under the Money Laundering Regulations 2017 (MLRs) who communicate financial promotions relating to qualifying cryptoassets. It also applies to others involved in the communication of financial promotions relating to qualifying cryptoassets, including social media influencers and platforms. The guidance clarifies firms' existing regulatory obligations, rather than creating new obligations.

Areas covered by the guidance include:

• The context and scope of the cryptoasset financial promotion regime.
• Application of FCA rules on cryptoasset financial promotions.
• Ensuring cryptoasset financial promotions are fair, clear and not misleading.
• Financial promotions on social media.
• Due diligence before communicating a financial promotion.
• Disclosing legal and beneficial ownership of a cryptoasset.

FCA Q&As on cryptoasset registration under MLRs

On 27 October 2023, the FCA published a new webpage containing Q&As to help cryptoasset firms applying to be registered under the MLRs.

The Q&As cover the FCA's requirements and expectations of cryptoasset businesses for registration under the relevant anti-money laundering regime. They cover typical questions about preparing to apply, and what happens after the application has been submitted. There are also questions relating to individuals who may need to be appointed by applicant firms, such as the money laundering reporting officer.

Only cryptoasset businesses registered with the FCA under the MLRs (who are not otherwise authorised persons) can take advantage of an exemption under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 to communicate their own financial promotions in relation to qualifying cryptoassets, without the promotion being approved by an authorised person.

FCA warns of common issues with cryptoasset financial promotions

On 25 October 2023, the FCA published a statement warning about common issues with cryptoasset marketing. The regulator has identified three common issues with cryptoasset financial promotions:

• promotions making claims about the "safety", "security" or ease of using cryptoasset services without highlighting the risks involved;
• risk warnings not being visible enough due to small fonts, hard-to-read colouring or non-prominent positioning; and
• customers not being given adequate information on the risks associated with the specific products being promoted.

Please see our Insight for more details.

HM Treasury policy paper on regulatory approach to fiat-backed stablecoins and other related publications

On 30 October 2023, HM Treasury published an update on its plans for regulation of fiat-backed stablecoins. HM Treasury intends to bring certain fiat-backed stablecoins within the remit of the FCA, the BoE and the PSR, aiming to minimise the potential for customer harm and mitigate the conduct, prudential, and financial stability risks of such stablecoins, particularly when used for payments.

In the update, HM Treasury sets out an overview of its plans for the regime, with details of the specific roles and powers for the FCA, the BoE and the PSR. HM Treasury intends to bring forward secondary legislation to regulate activities relating to fiat-backed stablecoins as soon as possible and by early 2024, subject to parliamentary time.

The authorities have also released a raft of other publications relating to stablecoins:

• HM Treasury response to May 2022 consultation on managing the failure of systemic digital settlement asset (including stablecoin) firms
• BoE discussion paper on the proposed regulatory regime for systemic payment systems using stablecoins and related service providers
• FCA discussion paper on the proposed approach to regulating fiat-backed stablecoins that may be used for payments (DP23/4)

Other Updates

FCA BNPL research note

On 31 October 2023, the FCA published a research note exploring the use of unregulated buy-now-pay-later (BNPL) credit (referred to in the note as deferred payment credit) by consumers in the UK.

The research covers the growth in use of BNPL credit, the demographics of users, how and why it is used, and the impact of its use. It also explores how this relates to the use of other forms of credit such as overdrafts and high-cost credit. The data forms part of the FCA's Financial Lives research.

The analysis will help to inform the FCA's position on BNPL credit. Although it is not currently regulated, BNPL credit is expected to become subject to regulation in due course.

Economic Crime and Corporate Transparency Act receives Royal Assent

On 26 October 2023, the Economic Crime and Corporate Transparency Act 2023 received royal assent. The Act is the second part of a legislative package aimed at preventing abuse of UK corporate structures and tackling economic crime.

Among other things, it delivers:

• reforms to Companies House, including enhanced abilities to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies;
• reforms to prevent the abuse of limited partnerships;
• additional powers to seize, freeze and recover suspected criminal cryptoassets;
• reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime; and
• new intelligence-gathering powers for law enforcement.

The Act brings significant business crime developments including:

• The introduction of a failure to prevent fraud offence, imposing a criminal liability on a large organisation that fails to prevent fraud intended to benefit the organisation, with a defence of adequate procedures in place to prevent fraud; and
• a change to corporate criminal liability by expanding the class of persons whose conduct can be attributed to the company. An organisation will be guilty of an offence where a senior manager acting within the scope of their authority commits a relevant offence.

Please see our Insight for more details on the corporate and limited partnership transparency changes.