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

New rules on marketing cryptoassets to UK consumers now in force

On 8 October 2023, new financial promotions rules for qualifying cryptoassets came into force. The definition covers cryptoassets that are fungible and transferable and excludes, for example, non-fungible tokens (NFTs). The rules apply to all firms marketing cryptoassets to UK consumers, including firms based overseas. Please see our earlier Insight for more details on the scope of the new rules.

There are now four routes to promote cryptoassets to UK consumers legally:

• The promotion is communicated by a person authorised under the Financial Services and Markets Act 2000. For these purposes, a firm authorised only under the Electronic Money Regulations and/or the Payment Services Regulations is not considered an authorised person.
• The promotion is made by an unauthorised person but approved by an authorised person. It is important to note the incoming new rules for approving financial promotions – for more details, please see our Insight.
• The promotion is communicated by a cryptoasset business registered with the Financial Conduct Authority (FCA) under the Money Laundering Regulations, in reliance on a specific exemption in the Financial Promotion Order.
• The promotion is otherwise communicated within an available exemption in the Financial Promotion Order.

As a result, the FCA has taken over regulation of technical claims in adverts for qualifying cryptoassets in non-broadcast media from the Advertising Standards Authority (ASA), with non-technical aspects remaining under the ASA. The ASA remains the regulator of cryptoasset adverts in broadcast media, as well as advertising of cryptoassets that are not regulated by the FCA.

Payment service contract termination rule changes

HM Treasury has published a policy statement on implementation, timings and next steps for payment service contract termination rule changes on 2 October 2023.

In July 2023, HM Treasury announced that it would amend the Payment Services Regulations 2017 (PSRs) to extend the notice period for termination of a framework contract from two months to 90 days, and to require providers to give a clear and tailored reason for the termination.

HM Treasury has now set out details of its intended approach to amendments to the PSRs relating to payment service contract termination rules, including the following points:

• The amendments will apply primarily to regulation 51 of the PSRs, which provides for the termination of a framework contract. The new requirements will apply to firms and services that are currently within the scope of regulation 51.
• It does not intend to prescribe the specific information that should be provided to a customer where a provider decides to terminate a contract for the provision of a payment service.
• It is considering the extent to which providers will have limited flexibility not to provide 90 days' notice of account closures or a clear and tailored reason for account closures (or both) where this would bring the provider into conflict with other legal requirements or regulatory obligations.

HM Treasury intends to publish a draft statutory instrument by the end of 2023 and make the relevant amendments to the PSRs 2017 as soon as parliamentary time allows.

HM Treasury has also published a press release announcing that it intends to consult on changes to the threshold conditions that apply to banks with the aim of ensuring that banks uphold their duties to protect freedom of speech with an aim to legislate on this issue in 2024.

FCA reveals GFIN Greenwashing TechSprint winners

On 29 September 2023, the FCA announced the winners of the Global Financial Innovation Network (GFIN) Greenwashing TechSprint, in which participating firms and regulators showcased solutions that could help tackle the risk of greenwashing in financial services to a panel of judges.

The participants took on one of two problem statements centred around greenwashing in financial services and built a solution in response to these challenges:

• How can technology, including artificial intelligence and machine learning, enable regulators and supervisors to verify that ESG-related product claims to retail consumers are accurate and complete?
• How can technology help monitor, collate and identify examples of greenwashing from financial services firms' websites, social media platforms and other documentation or data which can also be shared across jurisdictions?

For further information on greenwashing, see our Insight and sign up for our Decarbonisation Week webinar series.

City of London Corporation and FCA launch APP synthetic dataset to help tackle fraud

On 27 September 2023, the City of London Corporation published a press release announcing that it and the FCA have launched an authorised push payment (APP) synthetic dataset to develop products and services designed to minimise fraud.

The dataset, hosted on the FCA's permanent Digital Sandbox, is intended to lay the foundation for better understanding how data can be shared to deal with obstacles to tackling fraud. It allows analysis of rare patterns of behaviour to progress the understanding of the role of synthetic data as a regulatory and compliance tool.

The dataset is comprised of 30 million rows of synthetic data, 20,000 synthetic individuals with full details, 20,000 synthetic accounts with 30,000 fraud events, over 70 million rows of synthetic text and call metadata, and two years of data.

EBA technical advice on classification of asset-reference tokens and e-money tokens and related fees under MiCA

On 29 September 2023, the European Banking Authority (EBA) published technical advice for the European Commission relating to delegated acts to be adopted under the Regulation on Markets in Cryptoassets (MiCA), which establishes an EU-level supervision framework for asset-referenced tokens (ARTs) and electronic money tokens (EMTs) determined by the EBA to be significant. The provisions in MiCA relating to issuers of ARTs and EMTs apply from 30 June 2024.

The technical advice relates to delegated acts on:

• Criteria for classifying ARTs and EMTs as significant. The EBA proposes a set of core and ancillary indicators for determining the circumstances under which ARTs, EMTs and their issuers can be considered as interconnected with the financial system and their activities as significant on an international scale. This relates to a delegated act mandated under Article 43(11) of MiCA.
• Supervisory fees to be charged to issuers of significant ARTs and EMTs. The EBA's advice covers the type of supervisory fees, the matters for which fees are due, the amount, and the manner in which they are paid, as well as the methodology for calculating the maximum amount that can be charged per entity. This relates to a delegated act mandated under Article 137(3) of MiCA.

The EBA has identified gaps in reporting obligations for issuers of ARTs and EMTs under MiCA, and intends to start work in Q1 2024 on guidelines intended to achieve consistent reporting of data by issuers, in accordance with common formats and templates.