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Consumer protection and reforming the financial promotion regime: Part 2 with a focus on cryptoassets

In their first briefing in this ‘mini-series’, Walker Morris financial services experts Jeanette Burgess or Andrew Northage and considered HM Treasury’s consultation on financial promotion exemptions for high net worth individuals and sophisticated investors, and highlighted other recent consumer protection initiatives.

In this briefing, our experts focus on the FCA’s consultation on strengthening its financial promotion rules for high risk investments, including cryptoassets. This is an important step forward in creating a robust regulatory framework that will foster innovation while ensuring consumer protection.

The FCA is urging all firms communicating cryptoasset promotions to begin preparations and encourages them to take any necessary advice.

How we can help

Please contact Jeanette or Andrew if you have queries about any of the points raised in this briefing, need assistance with responding to the consultation or advice on how it may affect you, or have concerns over any other regulatory or compliance issue.

Walker Morris produces a regular round-up of legal and non-legal tech-related news stories. If you would like to receive this and other similar updates direct to your inbox, please click here.

What is happening?

Following the government’s recent announcement that it plans to bring cryptoasset promotions within the scope of financial promotions legislation, the FCA is consulting until 23 March 2022 on strengthening its financial promotion rules for high risk investments, including cryptoassets, and for authorised firms which approve and communicate financial promotions.

‘High risk investments’ means those investments subject to marketing restrictions under the FCA rules and will extend to qualifying cryptoassets [1] when they are brought within the financial promotion regime.

Changes are proposed in four areas: the FCA’s classification of high risk investments; the consumer journey into high risk investments; strengthening the role of firms approving and communicating financial promotions; and applying the financial promotion rules to qualifying cryptoassets. We discuss the proposals in more detail below.


A key part of the FCA’s Consumer Investments Strategy is addressing the harm from consumers investing in high risk investments that do not match their risk tolerance. It says this can lead to unexpected and significant consumer losses and undermine wider confidence in investments, making it harder for all firms to raise capital. One of the main ways consumers build their understanding of investment risks and regulatory protection is through the information they receive in financial promotions.

The FCA points to a change in the investment environment, with financial promotions distributed to a mass audience at increasing speed through online platforms and social media. The pandemic has also seen a rapid rise in the proportion of consumers holding high risk investments. The FCA’s consumer research suggests many new investors are driven by social and emotional factors and do not always fully understand the risks involved, making them particularly vulnerable to unexpected losses.

For high risk investments, the FCA feels that even a good financial promotion which meets the ‘clear, fair and not misleading’ requirement may not be enough to adequately protect consumers because they may still not understand when the underlying investment does not meet their needs. In these cases, the FCA can use its financial promotion rules to give consumers further protections. It wants to ensure that the regime is robust and remains fit for purpose.

In a related development, the Advertising Standards Authority confirmed in November 2021 that it was treating cryptoasset advertising, particularly regarding cryptocurrencies and non-fungible tokens, as a ‘red alert’ priority issue. It has upheld a series of complaints over recent months.

At a time when governments, regulators and institutions worldwide are grappling with questions around cryptoasset regulation, the FCA highlights that these reform proposals represent the first ‘conduct of business’ regulation for cryptoassets in the UK and are part of a wider strategic approach developed by the Cryptoassets Taskforce comprising HM Treasury, the FCA, the Bank of England and the Payment Systems Regulator.

What are the reform proposals?

Classification of high risk investments (chapter 3)

The FCA wants to rationalise the way it categorises high risk investments to ensure products with similar characteristics are treated in the same way under its financial promotion rules. Some firms find it difficult to navigate the Handbook rules and understand what restrictions apply. The plan is to introduce two new categories:

  • ‘Restricted Mass Market Investments’ (covering non-readily realisable securities, peer-to-peer agreements and qualifying cryptoassets – mass marketing is allowed to retail investors subject to certain restrictions) and
  • ‘Non-Mass Market Investments’ (covering non-mainstream pooled investments and speculative illiquid securities – mass marketing is banned to retail investors).
Strengthening the consumer journey (chapter 4)

FCA research shows that too many consumers are investing in high risk products that do not match their risk tolerance and are unlikely to meet their investment needs. The plan, to be applied to promotions of ‘Restricted Mass Market Investments’ and ‘Non‑Mass Market Investments’, is to:

  • improve risk warnings to help consumers better understand and engage with them
  • ban inducements to invest (such as ‘refer a friend’ bonuses)
  • add positive frictions to counter social and emotional pressures to invest and support more considered investment decisions (personalised risk warning pop ups and a 24 hour cooling off period for first time investors)
  • make changes to investor declarations to help consumers better categorise themselves (introduce an evidence declaration and simplify language)
  • strengthen the appropriateness tests so consumers only invest following a robust assessment of their knowledge and experience (Restricted Mass Market Investments only)
  • introduce recordkeeping requirements for firms to monitor the outcome of the consumer journey.

Firms that decide to allow debt‑based payment options, a potential indicator of vulnerability, should have regard to their obligations under the client’s best interest rule and the Principles and carefully consider whether they have adequate monitoring systems and controls in place.

Strengthening the role of firms approving and communicating financial promotions (chapter 5)

Since permanently banning speculative illiquid securities from being mass-marketed in January 2020 the FCA has seen very few ‘section 21 approved’ promotions [2] but, with cryptoassets now being brought within scope of the financial promotion regime, and HM Treasury consulting on the financial promotion exemptions, the FCA expects there to be higher demand for approvals in future. The following proposed changes aim to improve the quality and content of financial promotions to enable retail investors to make informed investment decisions about any given product, and how much to invest:

  • Approving/communicating promotions: Guidance to make clearer the existing obligation to name the section 21 approver in the promotion; a requirement to clearly state on its face the date when the promotion was approved; a requirement for firms to self‑assess whether they have the necessary competence and expertise in an investment product or service before approving or communicating a relevant financial promotion (applies to firms approving promotions for appointed representatives, intra‑group business, third party unauthorised persons and firms communicating their own promotions).
  • Lifetime of the promotion: An ongoing monitoring requirement for section 21 approvers; a requirement for them to obtain attestations of no material change from clients; extending existing conflicts of interest obligations to firms approving financial promotions for unauthorised persons and those confirming compliance of a financial promotion for an authorised firm.
  • Consumer journey: A requirement for section 21 approvers of Restricted Mass Market Investments to take reasonable steps to ensure that the relevant processes for appropriateness tests comply with the rules on an ongoing basis; guidance to clarify the existing requirements for firms approving financial promotions for Non‑Mass Market Investments.
Applying the rules to qualifying cryptoassets (chapter 6)

The FCA says that it continues to encourage innovation and support competition in consumers’ interests, but it recognises that different types of cryptoassets and new business models can bring novel risks of harm for consumers and markets.

Any promotion of investment activity in relation to a qualifying cryptoasset would need to comply with the existing rules in COBS 4, including the requirement for a promotion to be fair, clear and not misleading, and the changes proposed to strengthen the consumer journey. The rules would apply to any in‑scope promotion communicated or approved by an authorised person and capable of having an effect in the UK, even when communicated by an overseas person. Instruments that provide rights to or interests in qualifying cryptoassets will also be in scope.

Qualifying cryptoassets would be categorised as Restricted Mass Market Investments but the FCA is proposing it should not be possible for direct offer financial promotions of qualifying cryptoassets to be made to self‑certified sophisticated investors.

Next steps and timing

Depending on the responses received, the FCA intends to publish a policy statement and final Handbook rules in summer 2022. It proposes to give firms three months from publishing final rules to comply with the new requirements in chapters 4 and 5.

For requirements relating to cryptoasset promotions, the FCA proposes that any changes apply from the date qualifying cryptoassets are brought within the financial promotion regime. The government has indicated that the relevant legislation to amend the Financial Promotion Order will be brought forward ‘once parliamentary time allows’ and it intends to put in place a suitable transitional period (approximately six months) from both the finalisation and publication of the amended regime and the complementary FCA rules.

We will continue to monitor and report on developments as further clarity around timings is given.


[1] Currently defined by HM Treasury as a ‘cryptographically secured digital representation of value or contractual rights which is fungible and transferable’. It excludes other controlled investments, electronic money under the Electronic Money Regulations 2011, central bank money, as well as cryptoassets that are only transferable to one or more vendors, or merchants in payment for goods or services.

[2] The effect of the financial promotion restriction in section 21 of the Financial Services and Markets Act 2000 is that an unauthorised person must have its financial promotions approved by an authorised person before they are communicated, so long as the promotion complies with the Handbook rules.




Head of Regulatory & Compliance

Jeanette's contact details

+44 (0)113 283 2632

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Regulatory & Compliance

Andrew's contact details

+44 (0)113 283 4543

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Meet the team