Partner Hailey Lennon wrote an article for Forbes examining the U.K.’s new cryptocurrency marketing rules aimed at protecting investors and the impact it will have on the industry in the country. She also discussed the breaking news that Bybit is exiting the U.K. market as a result of these new rules.
Last month, the U.K. passed the Financial Services and Markets Act 2023, bringing cryptoassets under the U.K.’s broader financial regulatory regime by amending the U.K. Financial Services and Markets Act 2000 (FSMA), including the rules on financial promotions.
The rules aim to make marketing of crypto products more transparent and accurate by prohibiting anyone from communicating “an invitation or inducement to engage in investment activity" in the course of business to a prospective customer unless conducted or approved via a regulated entity, or an exemption applies.
“Although the U.K. has not, thus far, taken the course the U.S. has (i.e. forcing cryptocurrency companies to register their tokens as securities), with these new rules, the U.K. is effectively creating a disclosure regime which will regulate the conduct of any person who markets cryptocurrencies to U.K. consumers in much the same manner as the U.K. regulates the promotion of securities,” Lennon wrote in the Sept. 22 article.
In response to the new rules, which go into effect on Oct. 8, cryptocurrency exchange Bybit announced it was suspending its services in the U.K., with new user applications stopping on Oct. 1. Once the new rules begin, existing U.K. users can no longer "make any new deposits, create new contracts or increase any of their existing positions for all products and services," Bybit said.
The new rules give the Financial Conduct Authority (FCA) regulatory oversight of certain types of regulated activities, which it didn’t have previously. They will focus particularly on how these activities are marketing to consumers and in that way, maybe proactively achieve the goals of consumer protection without restricting financial innovation better than what has been seen with the SEC focused primarily on enforcement actions, Lennon wrote.
“The act appears to make no distinction between ICO-based crypto assets and cryptocurrencies generally regarded as ‘decentralized’ and not subject to much regulation even in the United States, such as Bitcoin or Ethereum,” Lennon wrote. “Non-fungible products such as art NFTs are likely not captured by the regulation although whether a particular product is or is not affected by the incoming rules is a fact-driven analysis that will require specific advice.”
Read the full article here.