Cryptoasset financial promotions and fiat-to-crypto on/off ramp services

Firms should carefully consider the risks of partnering with unregistered cryptoasset firms that may be illegally promoting to UK consumers.

cryptoasset firms registered under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs)
payment services and electronic money (e-money) firms authorised or registered under the Payment Services Regulations 2017 (PSRs) or Electronic Money Regulations 2011 (EMRs)
firms authorised under the Financial Services and Markets Act 2000 (FSMA)

We have previously set out our interest in this area[1] and our concerns[2] that regulated/registered firms may not be doing enough to meet their own obligations when providing services to unregistered cryptoasset firms that are illegally promoting to UK consumers.

Since then, we have continued our engagement with regulated/registered firms.

We are encouraged by the steps many firms are taking to address our concerns. By doing so, we believe regulated/registered firms can play their part in ensuring the protections offered by the financial promotions regime are effective.

This page sets out:

the harms that are likely to arise when regulated/registered firms provide services to unregistered cryptoasset firms who appear to be illegally promoting
the risks regulated/registered firms could be exposing themselves to by providing services to unregistered cryptoasset firms who appear to be illegally promoting
examples of positive steps taken by regulated/registered firms to address our concerns

Who this applies to

This page should be considered by the following:

cryptoasset firms registered under the MLRs providing fiat to crypto and crypto to fiat (on/off ramp) services to unregistered cryptoasset firms
payment services and electronic money (e-money) firms authorised or registered under the PSRs or EMRs providing on/off ramp services or otherwise providing payment services to unregistered cryptoasset firms
FSMA authorised firms such as banks who may be providing services to unregistered cryptoasset firms

Such firms should be prepared to discuss these matters with us if required.

Background to the cryptoasset financial promotions regime

Under section 21 of FSMA, a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity. This is known as the financial promotion restriction (the restriction).

The restriction now applies to financial promotions involving certain cryptoassets[3] if the communication originates:

in the UK, or
outside the UK but is capable of having an effect in the UK

Financial promotions do not need to be expressly targeted towards UK consumers to be capable of having an effect in the UK and subject to the financial promotion regime. For example, if UK consumers can view the promotion and potentially engage in the investment activity that is being promoted, the communication is likely to be capable of having an effect in the UK. PERG 8.8.1G[4] explains that ‘it is irrelevant whether the communication has an effect provided it is capable of doing so’.

Under the regime there are 4 routes to lawfully communicate cryptoasset financial promotions to UK consumers.

The promotion is communicated by an FSMA authorised firm.
The promotion is made by an unauthorised person but approved by an FSMA authorised firm who has the appropriate permissions[5] to approve promotions (section 21 approver).
The promotion is communicated by (or on behalf of) an unauthorised cryptoasset business registered with the FCA under the MLRs in reliance on the Article 73ZA[6] Financial Promotion Order (FPO) exemption.
The promotion otherwise complies with the conditions of an exemption in the FPO[7].

Promotions not made using 1 of these 4 routes will be in breach of section 21 of FSMA, which is a criminal offence punishable by up to 2 years’ imprisonment, an unlimited fine, or both.

Harm to consumers and markets

By providing on/off ramp services to unregistered cryptoasset firms who appear to be illegally promoting, regulated/registered firms may be causing the following harms:

Consumer harm

Enabling consumers to interact with unregistered cryptoasset firms without the protections of the financial promotions regime. For example, consumers may be persuaded to engage in cryptoasset investment activity following the communication of unfair, unclear and misleading promotions by the unregistered cryptoasset firm.

These services may result in consumers investing in cryptoassets without being assessed on whether they:

understand the risks involved in investing in cryptoassets, or
can absorb potential losses

Financial crime

These services support firms who may not be meeting our standards on anti-money laundering or countering terrorist financing[8] (AML/CTF) and/or being used as a conduit to facilitate criminality.

We have seen regulated/registered firms provide services to some unregistered cryptoasset firms for whom we have wider financial crime and integrity concerns.

By providing these services, regulated/registered firms are at risk of facilitating criminality.

Unfair competition and undermining UK competitiveness

Many unregistered cryptoasset firms illegally promoting to UK consumers are based overseas.

By providing these services, regulated/registered firms are supporting unregistered cryptoasset firms in accessing the UK market and undercutting firms who are complying with UK regulatory requirements. This undermines the competitiveness of legitimate UK firms trying to do the right thing.

These services may result in consumers investing in cryptoassets without being assessed on whether they:

understand the risks involved in investing in cryptoassets, or
can absorb potential losses

These services support firms who may not be meeting our standards on anti-money laundering or countering terrorist financing[8] (AML/CTF) and/or being used as a conduit to facilitate criminality.

We have seen regulated/registered firms provide services to some unregistered cryptoasset firms for whom we have wider financial crime and integrity concerns.

By providing these services, regulated/registered firms are at risk of facilitating criminality.

Many unregistered cryptoasset firms illegally promoting to UK consumers are based overseas.

These harms are specifically related to cryptoasset firms who are illegally promoting to UK consumers in breach of section 21 FSMA.

They do not relate to cryptoasset firms who can legally promote to UK consumers, such as firms who are FSMA authorised, registered under the MLRs or have a section 21 approver.

Business models and risks to firms

Cryptoasset firms registered under the MLRs

We have seen a common business model where MLR registered firms offer services for exchanging fiat-to-crypto or crypto-to-fiat (on/off ramp).

This model operates via an application programme interface (API) or a ’widget’ that can be embedded on third-party (unregistered) firms’ websites or mobile applications.

This allows customers to access the MLR registered firms’ services directly from the unregistered cryptoasset firms’ websites or mobile apps.

The MLR registered firm is in a commercial arrangement with the unregistered cryptoasset partner firm, acting as the counterparty to the transaction but may not necessarily be providing custody of customers' cryptoassets.

Flowchart with 7 stage-consumer journey

Accessible version: stylised consumer journey involving an MLR registered firm providing on/off ramp services

Flowchart showing 7 stages of consumer journey. Stages 4 and 5 are highlighted.

UK consumer views illegal financial promotion made by an unregistered firm (eg a non-custodial wallet provider) on a social media platform. The promotion is communicated in breach of section 21 of FSMA.
Consumer lands on the unregistered firm's website and is exposed to further illegal promotions, inviting and inducing the consumer to engage in investment activity.
Based on these illegal promotions, the consumer decides to buy cryptoassets.
The consumer selects an MLR registered firm as the payment option and is directed to the ‘widget’ operated by the MLR firm.
The consumer is onboarded by the MLR registered firm through the widget.
After completing onboarding, the consumer buys crypto through the widget. The MLR firm is the counterparty to the transaction.
Cryptoasset is purchased and sent to the consumer's wallet operated by the unregistered firm.

Any MLR registered firm operating this business model in partnership with unregistered cryptoasset firms may be at risk of supporting the illegal communication of their partner’s financial promotions.

We have seen examples where the MLR registered firm is providing services to partner firms who appear to be in breach of section 21 of FSMA.

MLR registered firms may also be at risk of directly or indirectly benefiting from the illegal financial promotion communication by partners in breach of section 21 of FSMA.

Payment services and e-money firms authorised or registered under the PSRs/EMRs

We have seen authorised or registered payment services and e-money firms partnering with, or providing payment solutions to, unregistered cryptoasset firms.

These services include facilitating multi-currency payment accounts for transactions in both fiat and cryptoassets, cryptoasset trading and cryptoasset custody.

These services also enable unregistered cryptoasset firms to access traditional payment account facilities and international payment rails.

Flowchart showing 6 stages of consumer journey (see expandable version below for full text)

Accessible version: Stylised consumer journey involving an FCA authorised payment service provider (PSP)

Flowchart showing 6 stages of consumer journey. Stage 5 is highlighted.

UK consumer views illegal financial promotion made by an unregistered firm (eg an exchange) on a social media platform. The promotion is communicated in breach of s21 FSMA.
Consumer lands on the unregistered firm's website and is exposed to further illegal promotions, inviting and inducing the consumer to engage in investment activity.
Based on these illegal promotions, the consumer decides to buy cryptoassets.
The consumer is onboarded by the exchange.
The PSP facilitates the transfer of the customer's funds to the cryptoasset exchange, where the funds are converted from fiat into cryptoassets.
Cryptoasset appears in the customer's account at the exchange.

When unregistered cryptoasset firms communicate financial promotions in breach of section 21 of FSMA, they are committing a criminal offence.

Payment services and e-money firms who partner with, or provide services to, unregistered cryptoasset firms communicating illegal financial promotions in breach of section 21 of FSMA may be at risk of directly or indirectly benefiting from the illegal financial promotions.

FSMA authorised firms

Authorised firms may also be providing services to unregistered cryptoasset firms. For example, banks may be providing payment accounts to unregistered cryptoasset firms.

Where the authorised firms have a direct commercial relationship with the unregistered cryptoasset firm, they may be exposing themselves to risks if the unregistered firm is illegally promoting to UK consumers.

Risks to firms

Regulated/registered firms should carefully consider the implications of partnering with unregistered cryptoasset firms that are communicating financial promotions in breach of section 21 of FSMA.

We are concerned some regulated/registered firms are supporting unregistered cryptoasset firms in breaching the perimeter. This support includes:

providing services to unregistered cryptoasset firms that enable them to grow their business in the UK
enabling unregistered cryptoasset firms to engage in investment activity with UK consumers
providing financial support such as revenue sharing agreements or charging fees on behalf of unregistered cryptoasset firms

We remind regulated/registered firms that engaging with unregistered cryptoasset firms will necessarily involve careful consideration of their obligations under the Proceeds of Crime Act 2002 (POCA), which is highlighted in our final warning letter[1] for cryptoasset firms marketing to UK consumers letter of 21 September 2023.

Benefits obtained from illegal financial promotions could be criminal property and regulated/registered firms may be at risk of receiving and dealing with this criminal property through their relationship with the unregistered cryptoasset firms.

Maintaining relationships with unregistered cryptoasset firms communicating illegal financial promotions may also call the probity of regulated/registered firms into question.

Article 73ZA exemption

Reliance on the article 73ZA exemption in the FPO does not necessarily address our concerns.

This exemption allows an MLR registered cryptoasset firm to:

communicate its own financial promotions, or
enable financial promotions to be communicated on its behalf, provided it is a non-real time communication and the MLR registered cryptoasset firm prepared the content of the communication

We are concerned about financial promotions communicated in addition to the ‘widget’ operated by the MLR registered firm, such as on the broader website, app or social media accounts of the unregistered partner firm. We have not seen financial promotions communicated by unregistered cryptoasset partner firms, outside of or surrounding the widget, that have been prepared by the MLR registered cryptoasset firm. As such, the article 73ZA exemption does not apply to these financial promotions.

What we found

We have seen firms from different sectors taking a number of steps to mitigate the risks associated with partnering with unregistered cryptoasset firms. We have grouped these firms into 2 broad categories:

cryptoasset firms registered under the MLRs, and payment services and e-money firms authorised or registered under the PSRs/EMRs
FSMA authorised firms

Cryptoasset firms and payment services and e-money firms

Cryptoasset firms registered under the MLRs, and payment services and e-money firms authorised or registered under the PSRs/EMRs, have implemented the following measures to mitigate the risks associated with partnering with unregistered cryptoasset firms.

1. Understand the financial promotions regime

Some MLR registered firms, payment services and e-money firms have sought legal advice to enhance their understanding of the UK financial promotions regime and, in particular, the requirements of section 21 of FSMA.

2. When engaging with unregistered cryptoasset partner firms, help them to understand the financial promotions regime

Some MLR registered firms, payment services and e-money firms have assisted partner firms to understand the financial promotions regime and to become compliant.

3. Conduct thorough due diligence

Some MLR registered firms, payment services and e-money firms have conducted thorough reviews of their partner firms to determine whether the partners are compliant with section 21 of FSMA.

This includes assessing whether:

the partner’s financial promotions relate to qualifying cryptoassets, and whether
the financial promotions were communicated using one of the four legal routes.
the financial promotions are capable of having an effect in the UK

Some firms have used the questions set out in PERG 8.2.4[9] for their assessments. These firms took a proactive approach to due diligence and did not solely rely on whether the partner firm is on the FCA’s warning list[10].

4. Engage with a section 21 approver

A section 21 approver can review, amend and approve the financial promotions for the unregistered cryptoasset partner firm.

Some MLR registered firms and their partners have engaged a section 21 approver to ensure the partner firm can legally communicate financial promotions.

Some payment services and e-money firms only provide services to unregistered cryptoasset firms that have a section 21 approver.

5. Implement robust control frameworks

Some MLR registered firms, payment services and e-money firms have taken action to mitigate the risks of continuing to provide services to an unregistered cryptoasset partner firm.

Where firms have identified that an unregistered cryptoasset partner firm or client of a payment services or e-money firm was in breach of section 21 of FSMA, they have:

restricted the onboarding of partner/client firms
persuaded the partner/client firm to implement controls such as geo-blocks, to prevent financial promotions on websites, applications, and other channels from having effect in the UK
prevented existing UK consumers from engaging in further cryptoasset investment activities
implemented controls to prevent the onboarding of new UK consumers that were directed from a breaching partner/client firm
detect, assess and off-board non-compliant partner/client firms

Some payment services and e-money firms have procedures as well as remediation tools and processes to promptly detect and quickly address non-compliance. For example, having the ability to activate geo-blocks to restrict access to UK consumers, and to restrict the facilitation of fiat currency. Some payment service and e-money firms have continuous oversight protocols tailored to their business, their partners and their clients’ specific operations. For example, having enhanced due diligence procedures.

Both MLR registered firms and payment services and e-money firms have implemented proactive ongoing monitoring procedures to promptly detect potential breaches of section 21 FSMA by partners/clients as well as continually monitoring their own systems and controls to remain effective.

Authorised firms under FSMA

Authorised firms should carefully consider any direct commercial relationships with unregistered cryptoasset firms.

They may be exposing themselves to serious risks in providing services to unregistered cryptoasset firms who are illegally promoting to UK consumers.

Some FSMA authorised firms have chosen to proactively restrict services, such as payment services, to unregistered cryptoasset firms that we have issued a consumer warning[12] about.

Next steps

We hope this information is useful to firms in understanding our expectations.

All firms intending to engage or partner with unregistered cryptoasset firms should carefully consider the content set out above as part of meeting their own obligations when providing support services to unregistered cryptoasset firms that are illegally promoting to UK consumers.

First published: 26/11/2024 Last updated: 26/11/2024