This consultation seeks views on a government proposal to bring the promotion of certain types of cryptoassets within scope of financial promotions regulation. The measure is intended to enhance consumer protection, while continuing to promote responsible innovation.

Separately, the government is also consulting on proposals to strengthen the Financial Conduct Authority’s (FCA) ability to ensure the approval of financial promotions of unauthorised firms operates effectively. CryptoUK has also filed a response to this second consultation.

CryptoUK (CUK) welcomes the opportunity to comment on the consultation and is broadly in line with the sentiments outlined in chapter 3 of the consultation, with regards to the rationale for intervention. The financial promotion regime has been in place in one form or another since the inception of the Financial Services Act in 1986. This is to discourage financial institutions from taking unfair advantage of consumers in relation to a wide variety of financial instruments, and to protect the integrity and reputation of UK financial markets. Cryptoassets are not immune from such action by those seeking to misrepresent or defraud, who regard cryptoassets as another asset class in addition to securities, derivatives, debt instruments, etc.

You can read the full contents of our response below, alternatively you can download a PDF version here.

About CryptoUK

Crypto UK is the United Kingdom’s (UK) trade body for the cryptoasset sector. We believe in the transformative potential of digital and crypto assets and the underlying blockchain technology. We promote accountable self-governance whilst advocating for fit-for-purpose, appropriate and proportionate legislation and regulatory frameworks for crypto and digital assets in the UK. We achieve our vision by establishing and fostering productive partnerships between digital and crypto asset sector participants with legislatures, policymakers, regulatory agencies and others to educate and nurture an environment that fosters innovation, job creation and investment, consumer confidence and market integrity.

Below are the collective responses from our members to the twelve questions posed by HM Treasury (HMT).

Definition

The objective of proposed new regime is to ensure that cryptoasset promotions are held to the same high regulatory standards of fairness, clarity and accuracy that apply to the “traditional” financial services sector.

The scope of the financial promotions regulatory regime is broad. It applies to promotions communicated by firms authorised to carry on regulated financial services activities, and to promotions of certain investment activities communicated by unauthorised firms.

Section 21 of FSMA contains the financial promotion restriction. This restriction is broad in scope and provides that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity or claims management activity. This includes invitations or inducements to engage in certain activities which are not regulated for the purposes of the general prohibition. For example, a person may not necessarily carry on a regulated activity requiring authorisation in issuing bonds but the marketing of the bonds is likely to be subject to the financial promotion restriction.

The financial promotion restriction does not apply if:

• the communication is made by an authorised person, or
• the content of the communication is approved by an authorised person, or
• the financial promotion otherwise meets the conditions of an exemption within the Financial Services and Markets Act 2000 (Financial Promotion) Order (FPO) 2005.

The effect of the financial promotion restriction is that an unauthorised person must have its financial promotions approved by an authorised person before they are communicated (unless an exemption applies). Communicating a financial promotion in breach of section 21 is a criminal offence.

Currently, security tokens that fall within the regulatory perimeter of the Regulated Activities Order 2001 (RAO) are captured by the FPO as “controlled investments” and e-money tokens are regulated separately under Electronic Money Regulations 2011 (the EMoney Regulations).

By adding unregulated cryptoassets to the list of controlled investments in Part 2 of Schedule 1 to the FPO, the financial promotion restriction would apply to any inducement or invitation to exercise any rights conferred by unregulated cryptoassets to acquire, dispose of, underwrite or convert the same (by virtue of section 21 of FSMA).

A “qualifying cryptoasset” means any cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and which

1. is fungible ;
2. is transferable or confers transferable rights, or is promoted as being transferable or as conferring transferable rights;
3. is not any other controlled investment;
4. is not electronic money within the meaning given in the Electronic Money Regulations 2011; and
5. is not currency issued by a central bank or other public authority.”

Q1: Do you have any comments on the proposed definition of qualifying cryptoassets?

First, we observe HMT believe that cryptoasset (CA) promotions should be held to the same high standards for fairness, clarity and accuracy that apply to the traditional financial services sector. Many in the sector believe that cryptoassets and the underlying blockchain technology will develop and grow to rival certain traditional securities. However, today and for the foreseeable future (5-10 years) the cryptoassets sector is very small in comparison to traditional financial services, and therefore we feel that it is too early to consider the promotion of CA in the same fashion as traditional financial services. A number of reasons are highlighted throughout this response. CAs are a new asset class with an underlying new technology which must be treated in an appropriate stepped manner relative to the size and risk arising in other financial sectors.

At the date of this response the total value of all cryptoassets is $393 billion. The CA market in the UK has recently been reported on by the FCA in their “Consumer Research Note”. FCA findings highlight increased adoption of CA in the UK over the past year (since their initial study in 2019), with CA holders increasing from 3.5% to 5.35%, or 1.5 million to 2.6 million people. These numbers are miniscule compared to UK retail holdings of traditional securities.

Secondly, we feel in general that the two key definitions of fungibility transferability and are too broad and do not future proof the dynamic nature of the technology and the industry.

We in the CA community worked alongside many stakeholders in the production of the HMT cryptoassets taskforce final report released in October 2018. The key definitions and the taxonomy of the three classes of cryptoassets has been widely adopted globally by both the public and the private sector. This is important as there are fundamental differences between an exchange or payment token, a security token and a utility token. A number of our members make specific reference to the FCA comment that “while some people had speculative reasons for buying utility tokens (for example XRP), that wasn’t what they were designed for”​. We believe HMT could craft a more nuanced and appropriate definition of “qualifying cryptoasset” in its final proposal.

Section 4.27 The exclusion of cryptoassets that are “not transferable” nor which “confer transferable rights” would exclude cryptoassets used within a closed system where only redemption via the issuer, rather than transfer to other users, is possible. For example, were a supermarket customer loyalty scheme to exist on a Distributed Ledger Technology (DLT) system, with tokens analogous to loyalty points, the government has accepted that these would fall out of scope of regulation. These tokens would not be freely transferable outside the system. This limits the extent to which these tokens can be bought with the expectations described above (4.25), substantially reducing consumer risk. Therefore, it is appropriate to exclude them from the regime.

However, we challenge the above definition in so far as one could envision a scenario where Amazon for example, offers digital tokens or vouchers to its customers. These initially operate within the Amazon ecosystem as a discount or means of payment for goods and services. However, Amazon may then partner with Tesco, for example, allowing the digital token to be moved across platforms, and also to be transferred from one holder to another. This concept is not very far off and in fact many global companies are trialling such systems.

Our members also discussed the fact that many digital assets that appear to be fungible, can actually be defined as non-fungible. For example, one Bitcoin token may appear just like a £5 note in that it cannot be differentiated as a means of payment, unit of account and store of value. However, there is a subtle difference in respect of the providence of the Bitcoin token. Unlike the history and operation of the £5 note, with cryptoassets every transaction and destination (wallet address) is coded into the blockchain. Therefore, one could argue that every Bitcoin token is different as each history is unique.

Furthermore, we draw HMT’s attention to a growing area of non-fungible cryptoassets, so called Non Fungible Tokens or NFTs. A way we can look at NFTs is as a form of “liquid intellectual property” ​ allowing a content creator to monetise and fractionalise their content and allowing for transferability of their content. We point to the possible unintended consequence where a bad actor avoids the proposed promotions regulation by adding design features designed such that at first look the token appears non-fungible, whereas taking a closer look shows it actually to be fungible.

Finally, CUK feels that the position taken to encompass cryptoassets that have yet to be defined or have more global recognition is hasty. Forcing these requirements on the underlying technology is akin to forcing transparency requirements on all durable media. The danger is of stifling CAs and stunting innovation.

Take for example a piece of paper, in itself a blank sheet, inert but arguably full of potential. In the hands of a skilled lawyer, that paper can become the framework of a legal agreement and that paper then carries with it decades of case law and the power to set future direction. Alternatively the same paper could be handed to a child or an artist and the result would be far different.

Branding text on this medium with haste risks placing the UK into an uncompetitive position where innovation and imagination are throttled, and in a world where automation is increasing, imagination might be the UK’s last hope of growth.

Cryptoassets may represent anything. Imagination is at the heart of their growth and utilisation. We would urge the government not only to reconsider and narrow hard requirements to those assets that are set and recognised, but also to set requirements in a way where it is possible for innovators to comply with the objectives of keeping their users safe and in control.

Q2. Do you agree that the correct tokens have been excluded from scope under this proposal?

Further to our response to question 1 we at CUK believe that further clarity should be provided to the question of exemptions. We would like to see additional guidance provided to the community in relation to the many nuances that exist around defining and categorising cryptoassets.

For example, we see no mention of hybrid tokens in the consultation. These are tokens that may start life as a security token, as a means to bootstrap a network. However, its real design purpose is to provide a utility. Thus the token starts life as a security token, then after a period of time when the network grows large enough becomes a utility token, which provides consumers with access to a current or prospective product or service and often grants rights similar to pre-payment vouchers to perform its real purpose and function.

We point HMT to the way in which the US and their major securities regulator, the SEC, has provided some clarity around this issue in relation to their “safe harbour” policy. We also point HMT to how the SEC specifically has named the Ethereum Blockchain’s native digital asset ETHER to be a hybrid token. It is clear exemption guidance that supports the community and the ongoing development of the industry.

We feel that as utility and exchange tokens are unregulated that they should be treated in a similar fashion to other unregulated financial instruments of services, such as spot FX and or spot Gold.

Our members appreciate the rationale for this intervention, i.e., to ensure that retail investors receive clear and candid information about the risks involved in purchasing cryptoassets. At the same time we believe the proposed definition could well “stifle innovation without a proportionate benefit to consumer protection. The additional burden placed on smaller companies operating in the crypto sector has already been unfortunately seen as rather damaging.

Throughout our approach to responding via a working group of members one common message was shared amongst the group and that was of “unintended consequences”. This is the risk that many businesses will move offshore due to additional, inappropriate and disproportionate burdens placed on firms.

We feel there is a great opportunity for the UK to be an attractive jurisdiction for businesses that operate within this new subset of the FinTech sector. With the loss of financial sector jobs due to twin headwinds of Brexit and the pandemic, we should look at how we replace these. It is crucial for the UK to compete with other “first mover” jurisdictions such as Switzerland, Singapore, Hong Kong and the Eurozone (MiCA).

Post the financial crisis of 2008 and the sovereign debt crisis of 2010-2012 the UK and Europe saw many of the jobs lost in the traditional financial sector be assumed by the growing new FinTech sector. London, through a combination of progressive policy setting, innovation, access to capital and other resources (City of London) has grown to become the FinTech capital of the world. In 2019 UK FinTech saw deals totalling £4.525 billion. It will be very important not to lose this economic advantage in the months ahead.

We at CUK see another great opportunity for the UK to create jobs in blockchain and crypto. We are already seeing many professionals move from the traditional financial sector to the crypto sector.

The Government’s approach to controlled activities

The controlled activities that the government considers most relevant are:

• dealing in securities and contractually based investments • arranging deals in investments
• managing investments
• advising on investments
• agreeing to carry on specified kinds of activity

The government therefore intends to amend these controlled activities so that they incorporate activities in relation to the buying, selling, subscribing for or underwriting of qualifying cryptoassets.

Q3: In your view, which of the controlled activities in Part 1 of Schedule 1 to the FPO correspond most closely to activities undertaken by firms in the cryptoasset space? Which firms are undertaking these, and what services are they providing in particular?

Section 4.29 states controlled activities that the government considers most relevant are:

• dealing in securities and contractually based investments
• arranging deals in investments
• managing investments
• advising on investments
• agreeing to carry on specified kinds of activity

We note that HMT defines a “qualifying cryptoasset” as “any cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and which – (a) is fungible; (b) is transferable or confers transferable rights, or is promoted as being transferable or as conferring transferable rights; (c) is not any other controlled investment as described in this Part; (d) is not electronic money within the meaning given in the Electronic Money Regulations 2011; and (e) is not currency issued by a central bank or other public authority.”

However, certain qualifying cryptoassets such as exchange and utility tokens (see question 1 response), are currently unregulated. In this consultation, the government is proposing to add certain unregulated cryptoassets to the list of controlled investments in Part 2 of Schedule 1 to the Financial Services and Markets Act 2000 (“Financial Promotion”) Order (“FPO”) 2005.

We feel this would create a 2 tier system where CA providers carrying out certain business activities (marketing of qualifying CAs) would have to adhere to a new regulatory perimeter, whereas involvement in other activities, such as issuing a non-security token, would not give the same result. We point to the recently published European Markets in Crypto Assets Regulation (MiCA) first draft. This legislation is somewhat all encompassing compared to the rather piecemeal approach which we are observing in the UK. Our community feels that the MiCA regulation would bring some clarity, consistency and a level playing field to the euro-zone. Some members went on to say they see the UK approach as having the opposite effects of inconsistency, not creating a level playing field, and creating confusion and additional unnecessary resource requirements.

As a final thought one could argue that we could end up with multiple inconsistencies in the way certain financial services, products and or activities are regulated. The FX spot market is not regulated in the UK, spot FX is therefore not considered a regulated investment and does not fall under the financial promotions order. The ability to swap one currency for another could be considered very similar to the selling of Bitcoin and buying of GBP (except for the fact that sterling is a fiat currency issued by the Bank of England.

Further discussions moved to the fact that the FX Spot market is self regulated through the Global FX Committee operating the FX code of conduct. The committee seeks to promote, maintain and update the code on a regular basis and to consider good practice regarding effective mechanisms to support adherence.

We appreciate that the consultation considered establishment of an SRO as an option, which was then rejected based on the “risks” involved. Equally, we are cognisant of the fact that initial UK financial services regulation involved extensive use of SROs and this structure made for better communication and operation between the regulator and regulated than in many respects exists today. We refer to question 9 “alternative options”.

Q4: Do you agree that the list of controlled activities under the FPO given at paragraph 4.29, above, best captures the activities undertaken by firms in the cryptoasset space which facilitate the buying, selling, subscribing for and underwriting of cryptoassets and whose activities are most associated with the risks this consultation seeks to mitigate? Do you agree that the government is therefore proposing to amend the correct set of controlled activities under the FPO?

CUK broadly agrees that the list of controlled activities would best capture the majority of crypto market participants. However, the category of “agreeing to carry on specified kinds of activity” is somewhat broad. We would therefore ask that HMT issue additional guidance in regards to this category.

During our many discussions a recurring discussion point centred on offshore firms targeting business in the UK. Certain participants may attempt to fall outside the proposals put forward in the consultation. Promotional methods hard to control would include direct emails, social media and web advertising directed from overseas to the UK. The group suggested that focussing the FCA lens in the proposed fashion would not go to significant lengths to address the concerns outlined in chapter 3 “rationale for intervention”. This would require equivalence of UK regulation with that of other jurisdictions. As mentioned above, we find the EU MiCA proposals more comprehensive.

A further narrative is one of ensuring the proposed changes are future proof, as far as may be possible. By this we are referring to the dynamic nature of the CA sector and the underlying technology. We see no mention of the evolving area of decentralised finance, the “DeFi” sub-sector of the cryptoasset sector. DeFi is an open finance movement built upon public programmable blockchains like Ethereum. DeFi uses smart contracts, automated enforceable agreements that don’t require intermediaries like banks or lawyers, but rely on blockchain technology instead. DeFi’s proponents endeavour to disrupt mainstream financial services, such as lending, asset trading, payments services and insurance to name a few, via automation operating without a central authority.

We further discuss DeFi in our response to question 5, specifically with regard to “other important activities undertaken by cryptoasset firms that pose similar risks in relation to the purchase of cryptoassets that are unlikely to be captured by the controlled activities the government proposes to amend”.

Q5: In your view, would the activities described at paragraph 4.31, above, fall within scope of the FPO if the controlled activities under the FPO (particularly those at paragraph 4.29) were amended to apply to cryptoassets?

Are there other important activities undertaken by cryptoasset firms that pose similar risks in relation to the purchase of cryptoasset that are unlikely to be captured by the controlled activities the government proposes to amend (paragraph 4.29 above)?

As mentioned in our response to question 4 we feel the consultation is somewhat lacking of a forward looking approach to sector developments.

DeFi experienced explosive growth in 2020. The total US dollar value currently locked in decentralized finance protocols today exceeds 12 billion dollars. By removing intermediaries and automating functions, DeFi can provide lower costs, higher degrees of security and privacy, and increase accessibility. The ability to borrow funds, take out loans, deposit funds into a savings account, or trade financial products, without asking anyone for permission, is gaining traction. This is a stark contrast against heavily lengthening traditional bank account opening times.

For example, the DeFi service Compound boomed when it launched its COMP token in June 2020. Users who provided liquidity to Compounds services earned the COMP token as a reward, thereby earning returns on their assets. Many DeFi platforms have since adopted similar incentive mechanisms, which has caused the value of assets in DeFi to surge.

Due to its level of accessibility, DeFi may enable greater availability of financial services such as credit and investment opportunities to people whose access has been previously limited. However, DeFi as a concept is still in its infancy and not without risks. It could, however, offer at least part of a solution to the issue of financial inclusion.

Today, the overcollateralisation required for borrowers to access DeFi loans makes it impractical for mainstream users, unless they are already crypto owners. Also, many DeFi protocols require a level of knowledge to use them, without which users can inadvertently be exposed to risks.

In addition to over-collateralisation, there are risks related to slow blockchain throughput and high transaction fees, liquidity which is too limited to meet the higher liquidity demands of larger market participants, security and smart contract risk related to any vulnerabilities that might put assets at risk of theft, or bugs in the code that may allow price manipulation.

Regulatory risk also exists. DeFi operates within areas that traditionally have significant oversight from governments and regulators who are charged with protecting consumers from market abuse and scams. A number of the DEX’s are truly decentralised, that is the creators are pseudonymous and the jurisdictions where the DEX operates is impossible to discern, making enforcement extremely difficult.

DeFi protocols have been designed to be permissionless, allowing anyone to access them without regulatory compliance. Whilst this democratises DeFi for the greater good, regulators have concerns that DeFi could be exploited by nefarious actors. However, DeFi could be regulated in a partially permissioned model, using decentralised KYC and AML methods to authenticate identity and block unsuitable users and inappropriate trades.

Q6: Do you have any other comments on the proposed treatment of controlled activities?

Some members of the group said that certain parts of the consultation felt as if there had been a “cut and paste” approach from MiFID and FSMA, which is akin to trying to place a square peg in a round hole. We at CUK welcome the regulatory clarity that the government is attempting to provide. However, we caution against using existing traditional frameworks, where a bespoke solution would be a “best fit” for all stakeholders in the new paradigm.

Exemptions

The government considers that exemptions for qualifying cryptoassets should generally be consistent with the approach taken to exemptions for other controlled investments. The government proposes to add a new exemption to the FPO.

The government wishes to ensure that vendors merely offering to accept cryptoassets in exchange for their goods or services, and buyers merely offering cryptoassets to pay for goods or services, in the same manner as they would accept pound sterling payments, are not captured under the regime.

Therefore, the government proposes to add the following exemption to the FPO:

“The financial promotion restriction does not apply to any communication which merely states that a person is willing to accept or to offer qualifying cryptoassets in consideration for the supply of goods or services.”

Q7: Do you have any views on the government’s proposed treatment of exemptions?

In the Consultation, the government proposes a limited exemption, excluding “any communication which merely states that a person is willing to accept or to offer qualifying cryptoassets in consideration for the supply of goods and services”. We at CUK agree that promoting a cryptoasset as a means of payment for a good or service should fall outside the proposed regime. Cryptoassets are already in common usage for payment of school and professional fees. There are bitcoin ATMs. However, we wish to highlight the inconsistencies raised earlier in question 3. In this context Bitcoin, for example, is seen as a means of exchange, a unit of account and a store of value, similar to fiat currency. Whereas, as mentioned in section 3, it is not just considered as a means of exchange but is considered a controlled investment, thus falling under the financial promotions order.

We at CUK would like to see further guidance in relation to additional limited exemptions, making clear that where the demonstrated purpose of an unregulated token is not, for example, speculation, but rather to facilitate payment transactions, advertising related to its usage should not be subject to the financial promotions regime. We also refer to our response to question 2 in relation to exemptions.

Other options

The government considered expanding the scope of the RAO to designate these assets as ‘specified investments ’. This would require a firm to become an authorised person in order to carry out a range of cryptoasset activities (such as dealing in cryptoassets), not just cryptoasset promotions. By becoming authorised the firm would be subject to FCA regulation and supervision when carrying out those activities. Further analysis is required to determine whether this is an appropriate, proportionate and necessary action. HM Treasury committed in the Budget in March 2020 to consult on the UK’s broader regulatory approach to cryptoassets, including stablecoins, later in 2020. This option has not been ruled out ahead of that consultation. However, at present and pending further analysis of the market to fully assess its distinctive and still-evolving technological features and risks, the government is not pursuing this option at this time.

Q8: Do you agree with the government’s assessment of the risks in the cryptoasset market, as summarised above and as outlined in detail in the Cryptoassets Taskforce report?

We at CUK know first hand the many risks inherent in the nascent industry and work hard as a community to address these risks through collaboration, education, media outreach and the development of conduct standards, in a shared engagement forum with market participants, policymakers and regulators.

Protecting UK consumers is important and should always be in the forefront of a regulator’s mind. Our members are also aligned with this priority. Without the confidence of consumers, a market cannot exist. However, as mentioned above, the additional burden of conducting business in the UK can have unintended consequences. These consequences range from participants choosing to move offshore, UK participants being uncompetitive in the global marketplace and offshore participants promoting into the UK, whilst not adhering to the proposals as outlined in this consultation.

The group also discussed the recent ban on the sale of derivatives and exchange traded notes (ETNs) linked to cryptoassets to retail customers as an indication of the government’s view of risks in the crypto market.

The general view of the group was one of surprise. We noted that the FCA says part of its decision was influenced by a lack of consumer understanding around these products. We are not convinced they are really any different to other similar alternative asset products that have not been banned for sale to the UK’s many sophisticated retail investors. Also, the sector has appropriateness and suitability tests to assess whether they are right for individual retail investors interested in using them.

CUK further asks the question as to the quantitative versus qualitative nature of this conclusion. The underlying research on which the results are based has a fundamental flaw. That is that the research has been carried out solely on cryptoassets with no control element. It is like testing a new drug without using a placebo. Our members would like to see research which contrasts the results against other financial instruments which are able to be marketed and sold to retail investors. It would be interesting to see which ones investors think are the more risky, and if so, by how much they think they are more risky. We observe some of the conclusions are based on anecdotal evidence. We feel that this really is not good enough and there should be a proper RIA undertaken, considering the wholesale prohibition and the overarching impact to the evolution of the sector in the UK.

The group also disagrees with the FCA’s view that there is no legitimate investment purpose for cryptoasset derivatives. Derivatives have been traded in the UK since the 19th century and have been of great benefit to the commodity sector in particular. Derivatives are at their heart a risk management tool, transferring risk from those that don’t want it to those that do, in a similar fashion to insurance, which has also been around for a considerable time. True, derivatives offer leverage which other financial instruments do not, but in certain retail sectors they are seen as less risky than the underlying, witness the preference of Dutch investors to buy stock options as opposed to the underlying stocks. In the same way that an investor may hedge against a position in a fiat currency on a spot basis, one may wish to hedge against exposure to cryptoassets. Any ban thus needs careful consideration, particularly as it also sends a negative signal regarding the UK’s stance on cryptoassets, as well as its loeading position in global derivatives markets.”

The FCA’s move is quite a drastic and blunt one, and the group wonders whether alternative options, such as implementing leverage limits, were sufficiently explored. It would seem as though cryptoassets have been unfairly singled out when compared to other alternative investment aimed at retail investors, without proper regulatory impact analysis.

Q9: Do you agree with the government’s assessment of alternative policy options?

We feel that offering well thought out, balanced and appropriate alternative options is of great importance. We therefore hope that we have achieved this goal with the following suggestions.

• Rather than take a number of steps forward in one move, that is bringing a previously unregulated new asset class into the existing financial promotions regime as proposed, CUK feels that a slower, stepped, and measured approach will reduce the unintended consequences stated earlier (uncompetitive / loss of market to offshore / no impact where needed). Our members feel that a more appropriate way of protecting consumers would be to introduce rules governing clearer language and a framework that promotes transparency. We see such initiatives in the gaming industry for example, where adverts show warnings “such as gamble responsibly”. Clear risk warnings to consumers giving sufficient prominence and substance, whether claims of investment return can be substantiated, etc. for example, could be an easier, more proportionate and effective approach.
• In the recently proposed European MiCA rRegulation in relation to marketing, the proposal is that promotions are submitted to the regulator before they are published, however there is no need to wait for approval as is suggested in this consultation. What is the HMT view to aligning with what the EU is likely to do, especially given the need for equivalence in order for both markets to be able to access each other smoothly?
• In relation to the proposed gateway discussed in the twin consultation “Regulatory Framework for Approval of Financial Promotions” our members wish to propose an alternative to the authorised firm. Similar (but not an SRO) the sector could form an institution or institutions that is fee based rather than member based, which is qualified to understand crypto assets and does not have a conflict with approving marketing campaigns.

Commencement date

Q10: Do you have any views on the government’s proposal not to provide for a transitional period?

Our members felt that a period of transition would be beneficial for all concerned. In light of the resource requirements being placed on the sector in terms of the new AMLD5 implementation and the resource pressure faced in government (not least by Brexit and the Covid Pandemic), both a short transition period of 3-6 months together with a longer implementation period to iron out any wrinkles and ambiguity would be helpful.

Territorial approach

Q11: Do you have any views on the proposed approach to territoriality.

No comment.

Q12: Do you have any additional comments to make on the proposed approach?

No comment.

We again thank you for this opportunity to comment on the consultation and hope you find our response helpful. This is a new and technical area and we stand by ready to answer any further questions, and provide such further input as you may desire.