8th September 2023
CryptoUK (“CUK”, “we”, “our”) and its members welcome the opportunity to comment on the Consultation Paper setting out the guidance on financial promotions on social media. CUK is the UK’s self-regulatory trade association representing the cryptoasset sector. Our members comprise of leading companies from across the sector.
In responding to the Consultation Paper, we set out the views of our members and others in the community. We seek to offer pragmatic and relevant suggestions as to how we believe the Financial Conduct Authority (“FCA”) could implement guidance on issuing financial promotions on social media whilst still enabling the UK to remain competitive as a destination for the burgeoning cryptoasset market.
We have considered the points below in our responses to each question.
General Consultation Questions
1. Do you agree with our approach to the prominence of required information in various social media settings? Please explain your answer, highlighting any other issues that would be useful to consider.
Whilst we are in agreement with the principles of fair, clear and not misleading applying to financial promotions on social media, we have questions over what is considered acceptable in terms of the required risk warnings to be applied and how these can be adapted and adopted across multiple platforms. Extensive risk warnings on social media posts can have the effect of becoming repetitive and in turn potentially reduce the impact of the warning – leading to less conscious actions. Risk warnings should be risk based depending on the risk of the underlying token and product in mind. We also note that the risk warning for cryptoasset investments is currently 155 characters long, and whilst there is dispensation for a shorter version to be used if this exceeds the required character limit, no guidance or practical examples have been given. We would find it helpful if the FCA provided some examples of a standardised abridged warning for firms to be able to use.
We would also like to suggest some possible alternatives that could be considered to assist firms with meeting the disclosure requirements:
● A link in an organisation’s social media post or profile, leading to a full risk warning on the website.
● Where possible, a prominent reference to the risk warning link in the respective post caption.
● A footnote in the image or video, recommending that the viewer select the full URL for more
information and risk warnings.
● An intro sequence for videos (2-3 secs) where the relevant risk warning is shown prominently
● For streaming, an oral risk warning before every cryptoasset segment or bot integration.
Furthermore, it would be helpful if the FCA could provide some guidance around the position on risk warnings where links to URLs for full risk warnings cannot be displayed. We note the position set out in COBS 4.12A.11[R](3) which states that if the medium of communication does not allow the incorporation of a link then it is not required, but any further clarity on what is needed as an alternative (if at all), would be helpful. We consider a brief statement such as “visit our website (with link to specific part of the website) for full details and risk warnings” would be a suitable alternative.
Additionally, there is a question on the use of global social media accounts where standard risk warnings that are applicable to multiple jurisdictions are currently in use. The guidance indicates that an additional, UK-specific, risk warning would also need to be added. Instead we would ask that the guidance include the provision of standardised examples that could be applicable and acceptable by the FCA for use in the UK and across several English language jurisdictions, for example, a link or statement referring people back to the specific part of the website for the risk warning.
2. Do you have any comments on our proposed expectations under the Consumer Duty for communications on social media? Please highlight any other issues it would be useful to consider.
We agree in principle with the broader fair, clear and not misleading approach but ask that it be taken into account that most cryptoasset activity is currently not a regulated activity (i.e it is only registrable under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”)). Therefore we would expect that any content directing users to a company website which would clearly display the required and extensive risk warnings alongside the requirements for new users should initially suffice in relation to this specific consultation.
We acknowledge that the regulatory status of cryptoassets may change in the future and this consultation should reflect the requirement to regularly revisit this guidance based on this and the transient and evolving nature of social media in general.
3. Do you agree with our approach to affiliate marketing? Please explain your answer, highlighting any other issues that would be useful to consider
In terms of “monitoring marketing actions of affiliate partners to ensure good outcomes” (paragraph 58), although the consumer duty does not apply to firms registered under the MLRs, it is assumed that these firms must still monitor to ensure communications are fair, clear and not misleading. In this case, it would be helpful if the FCA includes some potential best practice examples or additional guidance on how this could be enforced by firms. It would also be helpful to understand to what extent these requirements apply to firms such as comparison sites, who may directly or indirectly be involved with affiliate marketing arrangements.
We also understand that any financial promotion by influencer who promoting a product or service of an organisation without an agreement or relationship being in place, would be the responsibility of the influencer and any unauthorised financial promotion conducted in this manner would see enforcement on the influencer and not the organisation. We would ask this to be explicitly defined within the final guidance.
Finally with reference to paragraph 83 on affiliate links, we would like to clarify the implications of the phrase “or purchases the product” vis-a-vis the FSMA RAO 2001 regulated activity of “arranging deals in investments”. For context, while there has always been a slightly blurred line in relation to what acts amount to communicating a financial promotion and what amounts to arranging deals in investments, our understanding thus far has been that if the affiliate is being paid:
● a fixed marketing fee, then this is usually a financial promotion;
● a commission which is based on the number of click-throughs, then this is also usually afinancial promotion;
● a commission based on successful sign-ups/purchasing a product, then there is a risk that thisstrays into the regulated activity of arranging deals in investments. This is because the affiliate
is being paid to introduce financial services business, rather than being paid for marketing; or
● a commission based on trading volume following click-throughs, there is a probably a strongerargument that this would be arranging deals rather than a financial promotion.
However, in our view the draft guidance in paragraph 83 suggests that acts within categories (c) and (d) may now also fall within financial promotions rather than arranging deals – where it refers to “or purchases the product”. We would be very grateful if the guidance, and this paragraph 83 in particular, could provide definitive clarity on this point.
4. Do you have any comments on the use of shared social media profiles between UK and non-UK entities? Please highlight any issues that would be useful to consider.
Our understanding of the existing applicable territorial scope of the financial promotion regime is that the concept of “having an effect in the UK” contemplates the ability for the audience to enter into an agreement with the financial service provider or otherwise take an action as a result of the financial promotion.
Many organisations operate global or multi-jurisdiction social media accounts. The scope of this guidance covers anything that can ‘take effect in the UK’ which from our understanding, would mean only a product or service that a UK consumer can actually transact with / fulfil a call to action within the promotion. We do not feel that this is clearly articulated within the guidance and would ask for this point to be made with greater clarity.
There is also some confusion about whether this guidance would extend to anything that could be viewed by a UK consumer, regardless of the ultimate accessibility of the relevant product to UK customers. Given the lack of effective geo-fencing tools, and the ability of users to operate via VPNs this would mean access to content on global social media channels could be accessed by
UK consumers, even if not specifically targeted to this audience, and therefore may be in scope of the financial promotion regime.
We would therefore ask that the final guidance concentrates specifically on promotions that are actively targeted to, and accessible by UK consumers (i.e. something they can actually engage with and purchase) and not just act as a catch-all for anything that ‘could’ be accessed by a UK consumer, and that this point is made explicitly clear in the final guidance.
5. Do you have any comments on the proposed guidance we have set out on the financial promotion perimeter? Please highlight any other issues that would be useful to consider.
We would like to refer back to the CUK response to the FCA’s recently published consultation on its guidance for cryptoasset financial promotions (GC 23/1) and with reference to paragraph 27 of this Consultation Paper (GC 23/2).
We ask for confirmation that the sentence “a financial promotion communicated by the non-UK entity that can be viewed by UK consumers must comply with all relevant UK requirements” is simply a supplementary clarification to the sentence above it (“firms operating social media profiles that are shared between UK and unauthorised non-UK entities should be aware that the financial promotions restriction is applicable to all communications capable of having an effect in the UK”) and not a separate obligation in and of itself.
As set out above, our understanding of the existing applicable territorial scope of the financial promotion regime is that the concept of “having an effect in the UK” contemplates the ability for the audience to enter into an agreement with the financial service provider or otherwise take an action as a result of the financial promotion.
We ask for clarification that the mere possibility of viewing a communication – even where there are warnings as well as proper systems and procedures in place to prevent UK investors from entering into an investment contract – is not sufficient, in and of itself, to give it the capacity of having effect in the UK.
Finally, where a firm’s promotion promotes the underlying utilities received by purchasing a cryptoasset and not the actual cryptoasset itself (for example fan tokens), it would be useful to understand whether this in itself constitutes a financial promotion or not.
6. Do you have any additional comments on our proposed guidance or think there are any other topics we should consider?
We would like to add the following additional comments to our response:
● We know that, as an example, gambling does not receive as heavy restrictions on social media, with the ability for service providers to advertise gambling services on social media platforms, providers must go through an onboarding process (Meta) and must have a gambling license. They are then free to publish gambling content – with a simple age & responsibility disclaimer. Is there scope for a similar approach to be considered for the cryptoasset sector?
● Regarding the role of social media platforms in ensuring that no illegal content is published (page 25, paragraphs 66 to 68), it is important that a coordinated effort is put in place between the industry, the FCA and social media platforms to ensure rules are clear and fair. A point of concern is the reaction of social media platform operators on the new regulations which are not clear. Such a broad scope of their applicability may lead to platform operators blocking some of the global content or imposing unjustified regulatory requirements.
● We would like to raise the case of collectible/gaming tokens and also NFTs. Are these considered outside of the scope of this consultation and are there future plans by the FCA to bring these into scope. An example would be the promotion of an NFT (which does not fall within the definition of cryptoassets), which for example can be only purchased with cryptoassets?
● We request that the FCA regularly considers and updates this guidance, given the nature of social media, and that it is constantly evolving and changing.
● Where a firm’s promotion promotes the underlying utilities received by purchasing a cryptoasset and not the actual cryptoasset itself (for example fan tokens), it would be useful to understand whether this in itself constitutes a financial promotion or not.
● Additional clarity on obligations on firms for reshared content would be helpful. Is the original poster/organisation responsible for any future sharing of content or is it the person who shared the post?
● The FCA states that certain social media channels are not suitable for financial promotions. It would be useful to receive further guidance from the FCA on what it thinks is or is not suitable.