The FCA clamps down on the third-party approval of crypto financial promotions catching Binance off-guard. The regulator hasn’t moved against Binance itself, rather it has restricted the ability of Rebuildingsociety.com Ltd to approve financial promotions.
Rebuildingsociety’s financial promotion approval ban
Binance had been using Rebuildingsociety.com Ltd to approve its crypto marketing and promotional efforts in the UK.
Rebuildingsociety appears to be a peer-to-peer lender, rather than a specialist in compliance and marketing, though it’s regulated by the FCA.
On 10th October, the FCA announced that they were imposing restrictions on rebuildingsociety so they can no longer approve cryptoasset financial promotions.
In an email to its UK clients, Binance said that:
“The UK Financial Promotions Regime for qualifying cryptoassets came into effect on 8 October 2023. These new rules allow unregulated overseas firms, like Binance, to promote their crypto-asset businesses in the UK by engaging with a firm authorised by the Financial Conduct Authority”
“On 10 October, the FCA imposed legally-binding requirements on REBS, which meant that REBS was no longer able to approve financial promotions and with effect from 5 pm on 11 October 2023 REBS had to withdraw any existing approvals of financial promotions on behalf of any crypto-asset businesses, including Binance”
No new UK clients
The absence of FCA-regulated approval for its financial promotions means that Binance will have to stop accepting new users from the UK, though existing UK customers will be able to continue to use Binance’s services, as long as they have completed an Investor Declaration and Appropriateness Test.
Binance is currently looking for a new FCA-authorised approver for its financial promotions and in the interim period there will be some restrictions on the firm’s UK mobile platform.
Third-party financial promotion approvals have a chequered history
The third-party approval for the financial promotions of unregulated businesses first came to light in the fallout from the London Capital and Finance mini-bond scandal into which thousands of retail traders invested hundreds of millions of pounds.
It transpired that mini-bonds fell outside of the FCA’s regulatory purview even though the regulator required that promotional materials for the product be approved by an FCA-regulated firm. Which critics argued, with some justification, in my opinion, gave the LCF mini-bonds an unjustified air of legitimacy.
The unregulated promotion of crypto products and trading venues to retail clients in the UK has been a major cause for concern, as there was no way to screen outright scams and fraudsters from more legitimate schemes.
Fit for purpose?
The recent introduction of the UK Financial Promotions Regime for qualifying crypto assets was designed to allow retail investors and others to identify bonafide crypto promotions and to ensure that promotional activities were realistic in their claims.
The fact that the FCA has moved so quickly to limit the activities of an existing player in the crypto promotional approval space, suggests that the regulator means business but surely also calls into question the quality of the existing infrastructure that supports this type of third-party approval.