Who will be caught by the FCA crypto-investment ban?

2nd December 2020

The Financial Conduct Authority (FCA) ban on cryptocurrency products takes effect from 6 January 2021, so businesses have only a month to react and comply. Professor Dan Hyde, author of one of the leading works* on cryptocurrency regulation, visiting Professor of Law at Queen Mary, University of London, and a partner with HCR in London, warns that those who hope to slip past the FCA with a brand change or an overseas operation will swiftly find themselves on the wrong side of the law.

Once the ban is in force, the UK regulator will prohibit the sale, marketing and distribution of derivatives and exchange notes that reference unregulated, transferable cryptocurrency to all retail clients by firms in or from the UK.

Investments with these cryptocurrencies as the underlying asset will be prohibited and it will be a criminal offence to sell, market or distribute these products in or from the UK. The ban will also apply to sales or marketing to UK retail clients by firms within the EEA. It will even prevent UK brokers or platforms marketing or distributing products that are lawful and available in other jurisdictions to UK retail clients.

Professor Hyde said: “For some companies, this is going to be a major restructuring exercise; others may not even realise how it will affect them. But just hoping that you can re-brand your products, or sell them from an overseas base, will not work.

“Make no mistake – breaching the ban will be a criminal offence with serious consequences, such as the closure of the business, significant fines, potential imprisonment and confiscation of property. Income generated from any business that contravened the ban would be the proceeds of crime and considered to be criminal property.

“If your business has an office or presence in the UK, you could still be committing an offence despite your business or assets being situated elsewhere. Similarly a business that is situated entirely outside the UK might be committing an offence where it is considered to be selling, marketing or distributing these products in or from the UK.

“It is essential that firms understand now whether their current operations are caught by the ban and act in order to avoid committing a criminal offence.

“Once the ban is in force the FCA will select organisations to prosecute in an attempt to put down a marker. It is vital that an organisation obtains advice now as to whether it might be contravening the ban, and how it might restructure its business so as to avoid or mitigate the serious consequences that may otherwise follow.”

Harrison Clark Rickerbys has more than 500 staff and partners based at offices in London, Thames Valley, Cambridge, Birmingham, Worcester, Cheltenham, the Wye Valley, Hereford and Cardiff, who provide a complete spectrum of legal services to both business and private clients, regionally and nationwide. The firm also has a number of highly successful teams specialising in individual market sectors, including health and social care, education, technology, agricultural and rural affairs, finance and financial services, defence, security and the forces, and construction.

*Blockchain and Cryptocurrency: International Legal and Regulatory Challenges