The UK government has set out its intentions to bring a wider class of cryptoassets into the scope of the financial promotion regulations.

HM Treasury recently published a Keeling Schedule, setting out its proposed legislative changes, which seek to expand the scope of the ‘Financial Promotions Restriction’ under the Financial Services and Markets Act 2000 (“FSMA”).

The Financial Promotions Restriction provides that a person, in the course of business, must not communicate an invitation or inducement to engage in investment activity unless:

(i) they are an ‘authorised person’ (as defined by FSMA);

(ii) the content of the communication is approved by an ‘authorised person’, or

(iii) a relevant exemption applies.

The restriction applies to ‘controlled investments’ (as defined by the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005). The list of controlled investments, at present, does not include crypto assets, save for a very narrow subset that are akin to securities and other regulated financial instruments.

However, the Treasury is now seeking to bring a wider set of cryptoassets within the remit of the Financial Promotions Restriction. This is being done by adding a set of “qualifying cryptoassets” to the list of ‘controlled investments’. The current definition for “qualifying cryptoassets” is any cryptoasset which is: (a) fungible; and (b) transferable. However, by way of clarification, the Keeling Schedule specifies that the definition will not include “electronic money”, “digitally issued fiat currency” and NFTs.

The proposed changes will introduce stringent regulation into an area that is well publicised as being high risk but, as matters stand, is almost devoid of oversight. As stated by the Treasury in the Keeling Schedule’s explanatory note, the changes are being made “because of the risks posed to consumers (often retail investors) by misleading cryptoasset advertising, which often overstates the benefits and rarely warns of the risks involved”. The note goes on to acknowledge the high profile failure of cryptoasset firms such as FTX, stating that these further underscore “the need for effective regulation”.