Failed to Get Authorisation From the FCA? Your Next Steps to Get Marketing Materials Approved

The changes to cryptoasset regulations in the UK have been hard and fast. The Financial Conduct Authority (FCA) has introduced new rules governing the promotion and marketing of cryptoassets to UK consumers. These rules, which came into effect in October 2023, are designed to protect consumers and ensure that they receive “clear, fair and not misleading information” about cryptoassets. 

For businesses operating in the cryptoasset space, understanding and complying with these new regulations is crucial. Non-compliance can result in enforcement action by the FCA.

Yet, around 85% of companies looking to register with the FCA are being rejected. Compliance and authorisation are always more difficult for new rules as there’s seemingly less clarity and help for them. However, at Englebert, it’s possible to sign off marketing materials crypto on behalf of companies with cryptoasset projects. This article takes a look at your options after getting refused for FCA authorisation.

The Essentials of FCA's Crypto Marketing Framework 

In order to get a better chance of approval should you try again, it’s important to fully understand the new framework, its purpose, and what it asks of companies.

The FCA's new rules bring the promotion of certain cryptoassets within the scope of the financial promotion regime. This means that firms wanting to promote cryptoassets to UK consumers must either be authorised by the FCA, have their promotions approved by an authorised firm, or fall within specific exemptions.

The rules classify qualifying cryptoassets as 'Restricted Mass Market Investments' (RMMIs). RMMIs can be mass-marketed to retail consumers but are subject to certain restrictions. These include:

• Clear risk warnings: promotions must contain prominent risk warnings, including statements that consumers should be prepared to lose all their money and are unlikely to have access to compensation if something goes wrong.
• Ban on incentives: firms are not permitted to offer incentives to invest in cryptoassets, such as new joiner or refer-a-friend bonuses. 
• Positive frictions: consumers must be given a 24-hour cooling-off period before they can invest, to give them time to consider their decision.
• Client categorisation: firms can only make cryptoasset promotions to certain categories of consumers, such as those certified as sophisticated investors or high net-worth individuals. 
• Appropriateness assessments: before processing an order for a cryptoasset investment in response to a promotion, firms must assess whether the investment is appropriate for the consumer.

These rules apply to all firms promoting cryptoassets to UK consumers, regardless of whether the firm is based in the UK or overseas. 

Firms need to review their marketing strategies and make necessary changes to ensure compliance. This may involve securing FCA authorisation, finding an authorised firm to approve promotions, or relying on exemptions. Firms must also implement systems and processes to meet the various requirements around risk warnings, client categorisation, appropriateness assessments, and more.

While the new rules undoubtedly present challenges, they also offer an opportunity for cryptoasset firms to differentiate themselves. In a market full of scepticism and risk, being seen as trusted is a huge advantage.

Navigating Approval: Understanding Routes and Common Pitfalls

The FCA has established four legal routes for firms wishing to promote cryptoassets to UK consumers

1. The promotion is communicated by an authorised person with the appropriate permissions from the FCA. 
2. The promotion is approved by an authorised person. This route may be challenging, as the authorising firm must first apply to the FCA via the financial promotions gateway and demonstrate competence and expertise in cryptoassets. Englebert is one of the few companies that can reliably approve marketing materials for cryptoasset projects.
3. The promotion is communicated by a cryptoasset business registered with the FCA under the Money Laundering Regulations (MLR). An exemption permits registered cryptoasset firms to communicate their own promotions.
4. The promotion complies with an exemption in the Financial Promotion Order. However, key exemptions like those for high-net-worth individuals and sophisticated investors do not apply to cryptoasset promotions.

While these routes provide a framework for compliance, firms must be diligent to avoid common pitfalls. The FCA has highlighted several issues that frequently arise in cryptoasset promotions

• Promotions that overstate the safety, security or ease of investing in cryptoassets without giving sufficient prominence to risk warnings.  
• Risk warnings that are not clearly visible due to small print, low contrast with the background, or positioning away from the main promotional content.
• Inadequate information on the specific risks associated with the cryptoasset product being promoted.

To stay on the right side of the rules, firms must carefully review all promotional content, ensuring risk warnings are prominent and clearly worded. Providing balanced, product-specific risk information is key. Where an authorised firm is approving promotions, they must conduct robust due diligence.

The penalties for non-compliance are severe, including possible criminal prosecution.

However, the FCA has also indicated it will take a proportionate approach where firms are engaging in good faith to achieve compliance. Open dialogue with the regulator is advisable for firms navigating this complex new landscape.

So, while the legal routes provide a pathway to compliant cryptoasset promotion, firms must tread carefully and invest in rigorous due diligence processes to avoid the many potential pitfalls. Expert advice, especially when the rules are so new, is invaluable. A commitment to the spirit, not just the letter, of the rules will be essential for successful approval of the FCA's regime.

How Englebert Simplifies Compliance and Approval

Navigating the FCA's new regulatory framework for cryptoasset promotions can be a daunting prospect for many firms. Compliance requires a deep understanding of the rules, robust processes, and a significant investment of time and resources. This is where Englebert comes in, offering a comprehensive solution to streamline and simplify the compliance journey.

Englebert aims to specifically help cryptoasset businesses navigate the FCA's financial promotion rules. It offers a range of services that cover the key aspects of compliance:

Supporting FCA Registration and Authorisation

For cryptoasset firms seeking to register with the FCA under the MLRs or obtain authorisation, Englebert provides expert guidance and support throughout the application process. Experience with this new regime is scarce, yet at Englebert, we have already helped many businesses with these new rules. With a deep understanding of the FCA's requirements and expectations, Englebert can help firms prepare robust applications, increasing the likelihood of a successful outcome.

Promotion Review and Approval

Englebert offers a seamless platform for submitting cryptoasset promotions for review and approval. Our team of compliance experts, well-versed in the FCA's rules and guidance, scrutinise each promotion to ensure it meets the regulatory standards. This includes checking that risk warnings are prominent and clear, incentives are not offered, and the content is not misleading.

Implementing Positive Frictions

The FCA's rules mandate certain 'positive frictions' in the consumer journey, such as the 24-hour cooling-off period for first-time investors. Englebert's team alleviates these frictions, ensuring compliance without placing an administrative burden on firms. We also help with the categorisation of both projects and customers and the conduct of appropriateness assessments.

Ongoing Compliance Support

Compliance is not a one-off exercise. The regulatory landscape continues to evolve, and firms need to stay on top of the changes. Englebert provides ongoing support, monitoring regulatory developments and providing guidance to ensure firms can maintain compliance over the long term.

We also offer training, which is at the backbone of all forms of compliance. Regulation training provides a workforce with the tools and knowledge to tackle future compliance obstacles and demands. By partnering with Englebert, cryptoasset businesses can navigate these new demands with confidence. 

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Due Diligence: Key to Compliant and Effective Marketing

Thorough due diligence is the cornerstone of compliant and effective cryptoasset marketing under the FCA's new rules. It involves a systematic and comprehensive review of all promotional activities to identify and mitigate regulatory risks. 

While at Englebert we can help with this due diligence process, it’s also important not to be complacent and hands-off. It must be an ongoing process, not a one-off exercise, to ensure continued compliance.

Scrutinising Risk Warnings

A key focus of due diligence is ensuring that risk warnings meet the FCA's requirements. The regulator has made it clear that warnings must be prominent, taking into account size, colour, and positioning. They should use plain language that is likely to be understood by the average consumer. 

Due diligence involves carefully reviewing all promotional materials, including websites, social media posts, and advertisements, to ensure risk warnings are not diminished. Ultimately, this requires intuition and experience rather than an objective, repeatable test.

Reviewing Incentives and Inducements

The FCA's ban on incentives is another critical area for due diligence. Firms must scrutinise their marketing practices to identify and remove any offers that could be seen as inducing consumers to invest in cryptoassets. This could include new customer bonuses, refer-a-friend schemes, or time-limited offers. Even subtle forms of persuasion, such as implying that investing in cryptoassets is a way to achieve a certain lifestyle, could fall foul of the rules.

Assessing Consumer Journeys

Due diligence also involves a thorough review of the consumer journey, from initial engagement with a promotion through to the investment decision. Firms must ensure that appropriate frictions, such as the 24-hour cooling-off period for first-time investors, are built into the process. Client categorisation and appropriateness assessments must be conducted robustly and recorded.

Monitoring Outcomes

Effective due diligence is not just about process, but also about outcomes. Firms should monitor consumer behaviour and feedback to identify any signs that their promotions are misleading or causing harm. Regular reporting to senior management and swift action to address any issues are essential.

Leveraging Expert Support

Given the complexity of the FCA's rules and the severe consequences of non-compliance, many firms are turning to expert support for their due diligence efforts. Compliance consultants, legal advisers, and specialist platforms like Englebert can provide invaluable guidance and assurance.

Ultimately, due diligence is an absolute must for firms that have failed to get authorised.

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Going Forward

The FCA's new regulatory framework for cryptoasset promotions is quite a substantial milestone in the UK's efforts to have a more robust and consumer-focused cryptoasset market; a market that has been full of scams, hacks, and big losses. As a result, regulatory compliance has become a huge differentiator for firms seeking to build trust and attract customers.

For firms that have struggled to obtain FCA authorisation, the path forward may seem challenging. However, it’s important to gain as much feedback from the FCA as possible on why the refusal happened. Often, it’s a matter of not just doing the bare minimum, but instead going above and beyond by embracing the spirit of the new rules.

Partnering with authorised firms like Englebert can provide a faster and more successful route to compliance, enabling firms to focus on their core business while navigating the complex regulatory landscape with confidence. However, due diligence, training, and curating a culture of compliance are necessary regardless of whether you use external services or not.

Looking ahead, the cryptoasset industry will inevitably see more regulations. The UK government's ambition to establish the country as a global hub for cryptoasset technology and investment, coupled with the FCA's commitment to protecting consumers, sets the stage for a sustainable market. The efforts put into compliance today will likely pay dividends in the future as the market stabilises. 

In conclusion, while the journey to compliance may be challenging, it is a necessary one. By seeking expert support and investing in robust due diligence, it’s possible to not only get authorisation but thrive as a trusted project.

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