Direct offer crypto promotions: the four conditions

The prescribed risk warning

Every promotion of a restricted mass market investment must carry a compliant risk warning (COBS 4.12A.10R). For qualifying cryptoassets and UK RIE cryptoasset exchange traded notes, COBS 4.12A.11R(1)(d) prescribes the wording: Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Where a third-party marketing provider's character limit will not take it, COBS 4.12A.11R(2)(a) allows the short form: Don't invest unless you're prepared to lose all the money you invest.

On a website, mobile application or other digital medium the warning must also include a link in the form of the text Take 2 mins to learn more, which delivers the applicable risk summary from COBS 4 Annex 1R in a pop-up or equivalent (COBS 4.12A.11R(3)).

No incentives to invest

COBS 4.12A.7R prohibits communicating or approving a promotion of a restricted mass market investment that offers a retail client any monetary or non-monetary incentive. The FCA consulted on this expressly to stop refer-a-friend schemes and new joiner bonuses. The narrow carve-outs in the rule cover shareholder-style benefits produced by the person who benefits from the proceeds (and only for non-readily realisable securities, P2P and long-term asset fund units), and incentives offered solely to move an existing holding between providers.

The four direct offer conditions

COBS 4.12A.15R prohibits communicating a direct offer financial promotion for a restricted mass market investment to a retail client unless four conditions are satisfied, and prohibits approving one unless the firm is satisfied they will be met on each communication.

Cooling off period, COBS 4.12A.18R

After the client asks to receive the direct offer promotion, allow at least 24 hours to elapse before communicating it, then invite the client to say whether they wish to leave the journey or continue, with both options presented with equal prominence, and communicate it only if they say continue.

Personalised risk warning, COBS 4.12A.20R

Obtain the client's full name, then communicate: [Client name], this is a high-risk investment. How would you feel if you lost the money you're about to invest? Take 2 mins to learn more.

Client categorisation, COBS 4.12A.21R

Take reasonable steps to establish the client is certified as a high net worth investor, a sophisticated investor, or a restricted investor. For cryptoassets the self-certified sophisticated route is not available: COBS 4.12A.21R(2) offers it only for non-readily realisable securities, P2P agreements, P2P portfolios and long-term asset fund units. The FCA said in PS23/6 that it expects most consumers investing in cryptoassets to be categorised as restricted investors, who confirm they will limit exposure to such investments to no more than 10% of their net assets.

Appropriateness, COBS 4.12A.28R

Where the firm or the person who will transact in the qualifying cryptoasset knows or ought reasonably to know that an order responds to the promotion, that person must assess the investment as appropriate for the client under COBS 10 or COBS 10A before processing the order.

The FCA clarified in PS23/6 that the cooling off period runs from the moment the consumer asks to view the direct offer promotion, and that firms may carry out know your customer and anti-money laundering checks, categorisation and the appropriateness assessment during it. If those take longer than 24 hours, no further pause is needed, but the consumer must still give active consent to proceed.

COBS 4.12A.16G explains that the personalised risk warning and cooling off period are required only on the first occasion a firm communicates a direct offer promotion for a restricted mass market investment to a particular retail client. That is a narrow relaxation, not a general one.