Hong Kong lays out comprehensive guidance on crypto and tokenised securities-related activities by intermediaries, along with guidance on tokenisation of investment products

Since the new licensing regime for virtual asset trading platforms (VATPs) came into effect on 1 June 2023, allowing retail access to VATP services, the Securities and Futures Commission (SFC) has made further strides in expanding retail access in the virtual asset (VA) ecosystem. Continue reading

Government publishes non-stablecoin cryptoasset Consultation and Call for Evidence

HM Treasury (HMT) has published its long-awaited consultation (Consultation) and call for evidence (Call for Evidence) on the regulation of cryptoassets that are NOT stablecoins, e-money or already regulated by virtue of amounting to a traditional financial services instrument (a share, bond, unit in a fund, derivative, etc). Its scope is broad and captures a whole swathe of cryptoassets including cryptocurrency such as Bitcoin, as well as non-fungible tokens (NFTs). Continue reading

2022 Global Bank Review – Banking on People

We are excited to announce the launch of the 2022 Global Bank Review: Banking on People.

Surveying the current landscape of the financial sector in late 2022, it is hard to avoid the sense of an industry once again facing a severe squeeze. One thing is certain: global finance is currently facing mounting pressure to invest long-term for a low-carbon, high-tech world in the decades to come, while bracing itself for intense economic headwinds and volatility on the immediate horizon.

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How are NFTS regulated in the UK and EU?

The key points – what’s required or good practice now?

  • Marketing – Despite imminent plans to bring most cryptoassets within the scope of the UK’s financial promotions regime, NFTs are not set to be affected by this. However, the Advertising Code applies to cryptoassets which are not regulated products including most NFTs. The Advertising Standards Authority (ASA) issued guidance in March 2022 on advertising cryptoassets and includes NFTs in its scope. The guidance requires that advertisements of cryptoassets include a prominent statement that the product is not regulated. For financial services firms which are regulated in the UK, it would be prudent to keep in mind the FCA’s Principles for Businesses (even though most of the Principles do not apply to the unregulated business of the firm) when marketing NFTs and communicating with clients. Marketing of NFTs in the EU will vary between Member States as there is currently no applicable pan-EU regime. The EU’s Markets in Cryptoassets Regulation (MiCA) will introduce a marketing regime for some cryptoassets but is not set to apply to NFTs.
  • Licensing – NFTs that do not amount to a traditional security (like a bond or share), a unit in a fund, e-money or a derivative are not regulated in the UK. Current changes to the UK crypto regime to bring stablecoins within the regulatory scope will not impact on NFTs but future changes are possible. The position at pan-EU level is similar but individual Member States may have their own regimes. MICA, the pan-EU regulation on crypto-assets, is due to be introduced in the next couple of years and this will impose authorisation and marketing requirements for firms dealing with certain types of cryptoassets. However, this is not set to apply to NFTs.
  • Registration under the Money Laundering Regulations (MLRs) – If issuing or exchanging (in each case for money, other cryptoassets or another form of value) NFTs by way of business from within the UK, you will need to register with the FCA under the MLRs before doing so. If you operate in the EU, individual jurisdictions will have similar requirements. In the UK at least, the registration requirement will not apply if services are offered into the UK on a purely cross-border basis from overseas.

What is an NFT and what are their use cases?

A non-fungible token (NFT) is a unique digital record stored on a blockchain which usually represent rights in other digital or real assets (such as digital art or reward items like alcohol or holidays). An NFT is a method of tracking or certifying the ownership or right to that asset. This proof of ownership is possible as information stored on blockchains is almost impossible to change or destroy.

As NFTs’ metadata will point to different digital or real world assets, that gives them a level of uniqueness between themselves and makes them “non-fungible”. This contrasts with other forms of tokens like Bitcoin and Ether, which among each set of tokens are practically identical in function and metadata, making them directly exchangeable for each other or “fungible” like serialised bank notes.

Why are lawmakers paying attention to NFTs?

NFTs have been one of the hottest sectors of the crypto market in the last 12-18 months, with individual NFTs selling frequently for hundreds of thousands of dollars – up to a record of $69 million – and nominal transaction volumes on NFT marketplaces reported to have neared $25 billion in 2021, up from less than $100 million a year earlier. The apparent size of the opportunity has spurred interest from financial firms and non-financial businesses alike in issuing, marketing and intermediating transactions in NFTs.  Diageo-owned Johnnie Walker recently paired with Blockbar to launch an NFT entitling owners to – amongst other things – bottles of 48-year old whiskey, and JP Morgan recently made history, becoming the first bank to open on the “metaverse” where users can buy and sell NFTs and make use of other crypto-services.

While the boom appears to be cooling now – OpenSea, the biggest NFT marketplace, just announced 20% layoffs months after raising $300 million at a $13.3 billion valuation – NFTs remain a hot topic. Even with an apparently sustained drop in prices and volumes, there remains a lot of money and interest in NFTs; that, coupled with NFTs’ close connection with cryptoassets more generally, is likely to keep them squarely in lawmakers’ sights.

UK and EU marketing restrictions on NFTs

The UK financial promotions regime, a regime in the UK which governs marketing of regulated products such as investments, does not currently apply to NFTs which are not regulated (which would be the case unless the NFT contains features which would bring it within the regulated products category e.g. security, e-money, unit in a fund or a derivative). HM Treasury (HMT) is proposing an expansion of the financial promotion regime to capture certain cryptoassets (“qualifying cryptoassets”) even where they are not regulated under the licensing regime in the UK. However, these changes will not apply to NFTs because the proposed definition of “qualifying cryptoassets” will only capture fungible cryptoassets, which NFTs generally would not be.

Notwithstanding that the UK financial promotions regime will not apply, the ASA’s Advertising Code applies to NFTs. The ASA provided guidance  in March 2022 on advertisements for cryptoassets of all types in the UK. Advertisers must clearly state that cryptoassets are not regulated by the FCA and are not protected by financial compensation schemes.

For financial services firms which are regulated in the UK, even though NFTs are not regulated products, such firms are subject to the Principles for Businesses, in particular Principle 6 (Customers’ interests) and Principle 7 (Communications with clients). These two Principles do not apply to firms’ unregulated business, but it would be prudent for regulated firms to nevertheless pay regard to these Principles and ensure that their communications and offers of such products are broadly aligned with the Principles, and perhaps even with general financial promotions requirements.

UK and EU licensing regime and NFTs

NFTs that do not fall under the category of regulated products in the UK (such as units in funds, or securities, or derivatives or e-money), are not currently regulated in the UK.

Back in 2019, the FCA published a policy statement which effectively splits the world of cryptoassets into three broad buckets: security tokens, e-money tokens and unregulated tokens. Security tokens have the attributes of securities (shares, bonds, fund units, derivatives, etc.), while e-money tokens have the attributes of electronic money. The FCA regulates these types of tokens as securities or as e-money as appropriate, under the existing regimes for those instruments. Everything else, including NFTs, falls into the bucket of “unregulated tokens”.

The government confirmed  in April 2022 that it plans to bring stablecoins used as a means of payment into the UK regulatory perimeter. This will not impact NFTs, at least not for the time being. However, the HMT has indicated that it is considering the case for bringing a broader set of cryptoassets (such as Bitcoin) into the regulatory regime to a longer timetable. It remains to be seen if this will include NFTs – one to monitor.

In the EU, the licensing position will vary between Member States. As for the direction of travel in the EU, the European Parliament and Council reached preliminary political agreement on the MiCA last month. MiCA would provide a pan-EU regulatory regime for most cryptoassets, creating a licensing requirement for cryptoasset service providers and imposing conditions on cryptoasset issuers. Whether NFTs would be captured by MiCA was subject to much debate among the EU co-legislators. The settled position following political agreement appears to be that NFTs that are unique and non-fungible are out of scope – but this remains to be confirmed by the final text in autumn. As the proposal currently stands, fractionalised NFTs will be considered fungible and will therefore be regulated by MiCA; the same will be true for NFTs referencing non-unique or fungible items, which might cause some NFTs to become regulated. For more details on MiCA, please see our post here.

UK and EU anti-money laundering regime and NFTs

Whilst NFTs are not in scope of the UK general licensing regime, they are in scope of the UK anti-money laundering regime under the MLRs. Most prominently, firms in the UK exchanging, or providing custody for, these or any other cryptoassets must be registered with the FCA and comply with anti-money laundering (AML) rules, perform customer due diligence, etc. “Exchanging” is defined broadly and includes issuing tokens, as well as operating an exchange or marketplace for them.

UK (and EU) anti-money laundering rules also extend to “art market participants”, capturing firms that trade or intermediate transactions in works of art above a certain value threshold. HMRC, the UK tax authority, is responsible for overseeing art market participants’ AML compliance. While NFTs are often spoken of as a way of selling digital art, the relevant UK legal definition of a “work of art” comes from tax legislation that excludes digital art from its definition. HMT closed a consultation in October 2021 which proposed bringing digital art within the scope of this definition and therefore of the MLRs. However, for now it does not appear that digital art will be included in the MLRs – though HMT noted in their consultation response that they intend to keep this under consideration as they conduct further work to consider possible future changes to the relevant definitions.

The position in the EU will be similar as the UK MLR requirements on cryptoassets are derived from the Fifth Money Laundering Directive. However, there are likely to be variations in application in the different Member States, and rules will be subject to future developments – with the EU actively considering expanding the scope of its anti-money laundering legislation to capture NFTs.


Marina Reason
Marina Reason
+44 20 7466 2288
Patricia Horton
Patricia Horton
Professional Support Lawyer
+44 20 7466 2789
Jed Wilsher
Jed Wilsher
+44 20 3692 9682
David Wormley
David Wormley
+44 20 7466 2569


COVID-19: Governance: FCA and PRA publish statements on their expectations for regulated firms under SMCR (UK)

The PRA and FCA have published two statements setting out their expectations on UK-regulated firms under the Senior Managers and Certification Regime (SMCR).

A joint statement from the PRA and FCA has been published for dual-regulated firms (the Joint Statement), while the FCA have separately published a statement for solo-regulated firms (the FCA Statement).

There are also some differences in expectations as between solo and dual-regulated firms to be aware of, which we highlight below in Key expectations.

Next steps

In line with the expectations set out in the statements, firms should:

  • Ensure responsibility for the response to COVID-19 disruption is clearly allocated to an appropriate Senior Manager(s) (SM).
  • Document internally all decisions relating to interim re-allocation of Senior Management Functions (SMFs) and Prescribed Responsibilities (PRs) as a result of temporary absences during this period. Firms should be prepared to share these internal documents with the regulators on request.
  • Communicate material temporary changes to the appropriate regulator promptly (this may not need to be by way of usual SMCR notification forms).
  • Keep contingency plans under review to ensure they remain up-to-date.
  • Take reasonable steps to complete any annual certifications that are due to expire while restrictions are in place.

Key expectations

Allocating responsibility for COVID-19 response

  • Firms are not required to allocate a single SM to be responsible for response to the disruption caused by COVID-19. No “one size fits all” approach is being mandated (with the exception of requiring the responsibility of identifying key workers to be allocated to SMF1 (Chief Executive Officer) – see the FCA and PRA statements for more information).
  • In the Joint Statement, the PRA also recommends that dual-regulated firms consider how they respond to unexpected changes to contingency plans, given the possibility of SMs becoming temporarily absent. Solo-regulated firms should consider doing the same.

Temporary arrangements for SMFs and PRs


  • Where an SM is unexpectedly absent due to illness (or other COVID-19 related circumstances) firms may choose to allocate SMFs to existing SMs. In addition, under the existing ‘12-week rule’, firms may permit an unapproved individual to perform an SMF role where such arrangements are temporary.
  • For solo regulated firms, the FCA intends to issue a Modification by Consent to the 12-week rule to support firms using temporary arrangements for up to up to 36 weeks. This extended period is not currently available for dual-regulated firms (although this position remains under review).


  • The FCA and PRA expect PRs (for both solo and dual-regulated firms) to be allocated to existing approved SMs wherever possible. Where this is not possible (for example due to other SM absences), the PR can be allocated to an unapproved individual performing an SMF’s role on an interim basis.
  • All temporary changes to SMFs or PRs throughout this period should be clearly documented on internal records, including in Statements of Responsibilities (SoRs) and Responsibilities Maps (where appropriate). These records will need to be available to the FCA and/or PRA on request.

Furloughing staff

  • Both statements confirm that furloughed SMs will retain their approved status during their temporary absence and will not need to seek re-approval.
  • Certain ‘required’ functions (such as Compliance Oversight and MLRO) and/or ‘mandatory’ functions (such as the CEO, CFO and Chair of the Governing Body for CRR and SII firms) should only be furloughed “as a last resort”. Firms must arrange cover for those SMFs during the individual’s absence.
  • Firms have greater flexibility in furloughing SMs whose function are not mandatory. However, in the Joint Statement, dual regulated firms are cautioned to think carefully about the implications of furloughing non-mandatory SMFs (such as SMFs responsible for business continuity). Solo-regulated firms should also consider the implications of furloughing key senior staff.

Notification requirements during this period

All firms

  • All firms should update the FCA (and, where relevant, the PRA) by email or by telephone where:
    • unapproved individuals are acting as SMFs under the ‘12-week rule’; and/or
    • SMs have been furloughed.

Firms are not required to submit Forms C, D or J in connection with these temporary absences.

Solo-regulated firms

  • Solo-regulated firms will not be required to submit an updated SoR for approved SMs if a temporary change is made to their responsibilities. However, solo-regulated firms will still need to notify the FCA of the detail of any changes (by email or by telephone) that would normally be included in updated SoRs.

Dual-regulated firms

  • Dual-regulated firms are still required to update and submit SoRs if there are significant changesas soon as reasonably practical”. It is acknowledged in that this may take longer than usual due to current operational challenges.

No change to the obligation to certify staff as fit and proper

  • Dual-regulated firms should take reasonable steps to complete annual certifications due to expire during this period. What might constitute reasonable steps may be altered given the current situation, and certification policies and procedures may need to be adapted.
  • While not specifically addressed in the FCA Statement, in the absence of any new regulatory guidance, the FCA’s expectation appears to be that solo-regulated firms should also take reasonable steps to continue with annual certifications during this period.

Our blog post on the PRA and FCA’s guidance on key workers in financial services is available here, and our general briefing on COVID-19 – Key Issues for Employers is available here.


Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621
Patricia Horton
Patricia Horton
Professional Support Lawyer, London
+44 20 7466 2789
Emma Reid
Emma Reid
Associate, London
+44 20 7466 2633

FCA highlights its areas of concern in financial services markets in Sector Views 2020

On 18 February, the FCA published its Sector Views for 2020.  Described as its view of how the markets it regulates are performing, this “performance” is inevitably framed by its role as the UK’s conduct regulator.  Sector Views also looks at how the financial environment is changing, through a range of different lenses – the FCA’s objectives, macroeconomics, the political environment, and societal and technological developments. Continue reading