The June 2021 public warning by the Financial Conduct Authority (FCA) announcing Binance Markets Limited as not authorised to operate in the United Kingdom (UK) was a turning point in the financial promotion regulatory regime. The FCA prohibited Binance from advertising or offering regulated crypto services to UK consumers. This raised an alarming demand for strict regulations on the financial promotions of cryptoassets. The awareness about cryptoassets has risen from 73% in 2020 to 93% in 2024 in the UK.
What is Financial Promotion?
Financial Promotion, in simple terms, means the advertisement of the financial activity to consumers via different means. The Financial Services and Markets Act 2000 (hereinafter, “the Act”) defines a Financial Promotion. It is any form of communication (whether written, oral, electronic, or otherwise) that directly or indirectly invites or induces an individual or entity to:
Engage in Investment Activity, which includes entering into or offering to enter into an agreement involving a controlled activity (a regulated financial activity such as dealing in securities, derivaties, or cryptoassets) or exercising rights tied to controlled investment (buying, selling, or underwriting stocks, bonds or other specified financial instruments); or
Engage in claims management activity, which means entering into or offering to enter into an agreement, the making or performance of which by either party constitutes an activity of a special kind or relates to claims management services.
The Catalyst for Change
The term “financial promotion” seems to be a mere business activity which shall be allowed to ensure the prosperity of the business. However, there are restrictions on the financial promotion. The general restriction states that only an authorised person, the content of whose financial promotions has been approved by an authorised firm or an exempt person, can carry out a financial promotion. An Authorised person is one who has sought the adequate permissions as per Part 4A to carry out the regulated activities as per the FSMA 2000. Interestingly, S. 21 before the amendment in 2023 provided a very liberal and broader approach. It granted the right to an authorised person to approve others to carry out financial promotions without being answerable to any authority directly. The authorised person was required to ensure the promotion is clear, fair and not misleading. However, the inadequate regulations caused problems. The survey conducted by FCA shows a rising trend in the promotion and involvement of consumers in cryptoassets. The major sources for information about cryptoassets in 2024 were traditional media – TV, newspaper, etc. (25%), followed by online news (19%) and then social media (19%). The unfair cryptoassets dealing and promotions pose a risk and the adverts. Every 2 in 5 (38%) have either heard or seen the adverts about cryptoassets. Interestingly, the platform for information about such adverts is social media (44%), followed by online advertising (33%). And, out of all those who recalled seeing or hearing such adverts, only 32% agreed that the advert had a clear Warning stating that investing in cryptoassets was a high-risk investment. Hence, the rising trend called for adequate regulations.
The Legal Changes
The call for the change arose in 2020 when UK lawmakers identified the significant shortcomings in the existing mechanism against consumer protection. This was a consultative document titled – Regulatory Framework for Approval of Financial Promotions. It came up with preliminary findings about the lacks in the existing regulatory framework. The authorised persons/ firms often lacked specialised product knowledge, leading to approval of misleading promotions about complex instruments like cryptoassets or high-risk bonds. Many approving firms failed to conduct proper due diligence, sometimes rubber-stamping unrealistic return claims without verification. The FCA struggled with oversight as it lacks real-time data on which firms are approving promotions and for what products. This reactive approach led to consumer harm through investment losses, misallocation of capital to unsuitable products, and erosion of market confidence. Recent trends – including the ‘search for yield’ in low-rate environments and viral spread through digital channels – have exacerbated these risks. The government recognised that mere rule adjustments won’t suffice; structural reforms were needed to ensure approvers undergo pre-activity competency assessments, preventing harm before it occurs rather than addressing consequences after the fact.
The Consultation Responses received and pondered upon by the government, it was inevitable that a new regulatory regime had to come into play. It would prevent all the authorised firms from approving unauthorised firms’ financial promotions unless they pass through a new FCA gateway. This required 2 actions officially – An amendment to the FSMA, 2000, and FCA rules after due consideration of responses on consultation. The Responses briefly indicated that authorised firms will have to adhere to the Variation of Requirements (VREQ) to be an eligible approver. Moreover, responses also mentioned certain exemptions to intra-group promotions (Parent company approving a subsidiary’s ads) and appointed representatives’ promotions overseen by authorised principles.
Meanwhile, when the codified legislation and regulations were being made, the FCA introduced the PS 22/10 – Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions. These rules were to enhance oversight of financial promotions, particularly for high-risk investments like cryptoassets. Under the new framework, all approved promotions must prominently display the name of the authorised approver and approval date, increasing transparency for consumers and aiding regulatory enforcement. These rules came into effect in their entirety on 1st February 2023. These rules were to be read with Chapter 4 – Communicating with clients, including financial promotions of the Code of Business Sourcebook (COBS) in the FCA Handbook.
One of the 2 officially required actions to solidify the regulations was initiated on 20th July 2022 with the introduction of the Financial Services and Markets Bill (Bill) to British Parliament. This was intended to create a regulatory gateway for S. 21 approvers with the purpose of improving the regulatory framework in this area, including enhanced oversight of the approval market by the FCA and an improved standard of approvals. The second action in the same direction was initiated by FCA in December 2022 with the release of Consultation Paper CP22/27. This was the blueprint of the gateway that FCA was tasked with. It was aimed at operationalising the new gateway, which is supplementary to the drafted Amendment Bill. The operationalization of the proposals in the CP was subject to the passage of the Bill through Parliament and the Bill receiving Royal Assent.
The desirable outcomes came on 29th June 2023 when, FSMA Bill became an Act. The amendment made changes to S. 21 (Restrictions on financial promotion) and S. 55N (Requirements under section 55L or 55M: further provisions). The insertion of S. 21 (2A) stated that the exception available to an approved person shall be applicable only if the authorised person is permitted under Section 55NA or falls within an exemption conferred by regulations under 55NB.
The newly established legislative regime stated – An entity which was earlier allowed to approve the content of a communication merely by being an authorised person, shall not be able to do so unless the person has permission to do so from the FCA. The process of gaining permission can be applied by an authorised person or an applicant of Part 4A permission whose application for being an authorised person is still pending. Once the FCA has application, it may grant permission of the terms stated in the application or any other terms the FCA considers appropriate. On the consideration of the terms, the FCA may vary or cancel the permission based on the application of the person who gave it or on its own. If FCA grants or varies permission, it must set out the terms on which the permission was given. The FCA has discretion to refuse to grant, vary or cancel an application if it appears to the FCA that it is desirable to do so in order to advance its operational objectives. Even after granting permission, FCA may modify or revoke approval permission if a person fails to use its approval rights properly in the period of at least 12 months or, if changes better serve the FCA’s operational objectives. This process includes mandatory consultation with the Prudential Regulation Authority (PRA) for certain financial groups and Gibraltar-based firms. While these requirements create a more rigorous approval system, exemptions exist for cases covered by separate regulations under Section 55NB.
The final prevailing policy on regulating the financial promotions, including cryptoassets, flows from the Cryptoassets Financial Promotions Instrument 2023. This instrument was the result of consultation and responses on CP 22/10 and further review of PS23/06. The FCA implemented a stringent regulatory framework to govern cryptoassets promotions, introducing robust requirements to ensure consumer protection while maintaining market integrity. This regime applies to “qualifying cryptoassets” – defined as fungible, transferable digital assets excluding e-money and limited-utility tokens – and covers both FCA-authorised firms and MLR-registered entities like exchanges and wallet providers. Key provisions mandate prominent risk warnings (e.g., “Don’t invest unless you are prepared to lose all the money you invest”), WCAG–compliant digital accessibility, and clear disclosure of approver identities. Cryptoassets are classified as high-risk “restricted mass market investments,” requiring retail investors to self-certify as sophisticated or high-net worth and capping their exposure at 10% of net assets. Firms must conduct ongoing monitoring, including quarterly “no material change” attestations, and assess investor understanding through standardised appropriateness tests. While MLR-registered firms benefit from exemptions for non-real-time promotions fall outside the regime. Non-compliance risks criminal charges under FSMA Section 21 or FCA enforcement actions, with no FSCS/FOS protection for consumers. The rules have drawn criticism for potential compliance burdens, particularly for decentralised projects, but respect the FCA’s balanced approach to fostering innovation while mitigating risks like volatility and fraud. By aligning crypto assets with traditional high-risk investments, the framework enhances transparency but underscores their speculative nature, requiring firms to adopt rigorous approval processes and investor safeguards as the market evolves.
Conclusion
The FCA’s 2023 cryptoassets financial promotion rules mark a watershed moment in UK financial regulation. By replacing the laissez-faire approval system with a rigorous gateway and prescriptive disclosure requirements, the regime prioritises consumer protection without stifling innovation. Yet, the road ahead is fraught with challenges: decentralised projects struggle with centralised compliance, and retail investors remain exposed to high risks without regulatory safety nets. As the crypto market evolves, the FCA’s adaptive approach, rooted in transparency and accountability, sets a global benchmark. For firms, the message is clear: compliance is non-negotiable. Those who embrace robust approval processes, investor education, and ethical marketing will thrive, while others risk enforcement action. The UK’s experiment in crypto regulation is far from over, but its lessons are already reshaping the future of digital finance. Hence, leaves with the question – Will these rules drive innovations offshore, or finally bring legitimacy to UK crypto markets?
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