It is clear that an exchange or a wallet custodian registered under the MLRs formally acquires the right to make exempt financial promotions of qualifying crypto assets, as noted above.
But realistically, this should be treated as amounting to a restriction to the capacity to promote the sort of cryptocurrencies that such an exchange or wallet custodian is handling as a matter of its business.
These businesses will not be allowed to approve the content of financial promotions for other concerns – and, in passing, we should mention that under a separate initiative, the FCA is clamping down on the capacity for firms that it regulates to approve third-party financial promotions in any case.
Conclusion
The effect of the changes to the FPO limits the promotion of qualifying crypto asset investments to institutional and professional investors.
Access for retail investors to cryptocurrency has ceased to be available, other than for registered clients of a crypto exchange or wallet custodian that has itself registered with the FCA under the MLRs.
It is notable that only a few businesses have successfully applied to register with the FCA to date, which has taken a stringent, merits-based approach to these applications.
A list of the companies that have successfully registered with FCA is available here.
Subject to the resources at its disposal, the FCA can be expected to police this market sector, to ensure that firms that ought to have registered under the MLRs, but have not done so, are kept out of the market.
And there will clearly now be more of a drive towards firms seeking to be FCA-regulated to ensure they can engage in crypto asset activities as adjuncts to their other business.
How easy this will be in practice will depend upon the approach the FCA takes to such applications under part 4A because, as stated, there is still currently no statutory framework for the FCA to regulate the investment activities of such persons insofar as this involves crypto assets.
The NFT market is not within scope of these regulations. It will be interesting to see how inventive market participants become in using NFTs as vehicles for the packaging of investment propositions, and in turn how willing the FCA and government are to intervene further if this is thought to be an abuse.
By way of a warning, using NFTs to create a fractional ownership structure for another asset requires considerable care to ensure that this does not create a collective investment scheme, the formation and running of which are regulated activities on their own, by virtue of section 235 FSMA.
