Jurisdiction(s):
United Kingdom

FCA review of crypto promotions: appropriateness assessments edging into suitability, enforcement threats, competitiveness risks, and consequences for forthcoming UK crypto‑firm authorisation regime

Published on: 11 September 2024

Published by a Law360 reporter

Legal News

Article summary

In a review published in early August 2024, the FCA detailed examples of both sound and poor conduct by eight firms against its own crypto-financial promotion rules. It also spelt out its expectations—seen by some lawyers as edging into 'regulatory creep'—and firmly warned it will act if firms do not now raise standards. Practitioners are especially uneasy about the regulator’s demand that crypto-businesses deploy the mandatory 'appropriateness assessment' to judge whether products truly suit consumers. According to Paul Harris, a partner at Osborne Clarke LLP, the FCA’s approach risks drifting from appropriateness into claimability analysis, particularly where its review concludes that firms must gather far more customer information in order to work out whether the product is genuinely and demonstrably suitable for them in practice. Legacy EU provisions under the Markets in Financial Instruments Directive (MiFID) clearly define what an 'appropriateness' check entails, and how that differs from a suitability test.

Testing 'Appropriateness'

An appropriateness check considers whether a client possesses the knowledge and experience to engage with particular financial products. MiFID requires this for execution-only services, where the firm executes client orders without providing any advice. This is the assessment the regulator now expects crypto-businesses to apply...

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