UK FCA takes first court action against crypto exchange for illegal financial promotions

This is the first FCA enforcement action of its kind.  It is a significant development, designed no doubt to demonstrate to the crypto industry that the UK regulator is serious about taking action where it sees clear breaches of its financial promotions rules, and also with the aim of stemming consumer harm. This is a case where, as the FCA states in its press release announcing the court action, “HTX’s conduct stands in stark contrast to the majority of firms working to comply with the FCA’s regime”.  The claim does, however, underscore the difficulties which the FCA faces in securing compliance with its rules from crypto exchanges which operate overseas.

In the meantime, the FCA has requested social media companies to block HTX’s social media accounts to UK-based consumers and requested the removal of HTX applications from application stores in the UK.  HTX is currently on the FCA’s Warning List with a warning to consumers that the firm is not authorised by the FCA, and that it may be promoting or providing financial products or services without the FCA’s permission.

The FCA’s financial promotions regime

Under the FCA’s financial promotions regime, from 8 October 2023, there are four routes to legally promoting cryptoassets to consumers:

• The promotion is communicated by an authorised person.
• The promotion is made by an unauthorised person but approved by an authorised person.
• The promotion is communicated by (or on behalf of) a cryptoasset business registered with the FCA under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
• The promotion is otherwise communicated in compliance with the conditions of an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023.

Promotions that are not made using one of these four routes will be in breach of section 21 of the Financial Services and Markets Act 2000 (“FSMA”), which is a criminal offence punishable by up to two years’ imprisonment, the imposition of a fine, or both.

Note too that under section 30 of FSMA, when a customer enters into an agreement as a result of a communication in breach of the financial promotion rules, the agreement will be unenforceable against the customer, and the customer may be entitled to receive compensation for any losses incurred. 

See our previous article on the UK’s financial promotions regime for cryptoassets here.

Background to the FCA’s claim

By using HTX, either via its website or app, users can buy, sell and trade cryptoassets and other cryptoasset products. HTX’s business is promoted via various social media platforms, including X, Facebook, Instagram, Telegram, Tik Tok, You Tube, Discord, Medium and LinkedIn (the “social media platforms”).

In its Particulars of Claim, the FCA sets out the steps it had taken to engage with HTX in advance of its financial promotions rules coming into force for cryptoassets to ensure HTX was properly prepared for them.  In the period July to September 2023, the FCA sent emails, or letters by email, to HTX, setting out its expectations and asking HTX how it was going to comply. In the absence of a response from HTX, on 8 October 2023, the day the regime came into force, the FCA placed HTX on its Warning List as a firm which may be unlawfully making financial promotions.  Thereafter, the FCA wrote again to HTX a number of times, warning HTX that it was in breach of its rules.  On 22 October 2024, the FCA received an email from HTX stating that “HTX is aware of the UK marketing rules with effect from 8 Oct 2023” and that “[i]n response to the rule, we have stopped targeting any UK customers…”.

The FCA responded to point out that promotions which are capable of having an effect in the UK, regardless of whether they are so targeted, are still caught by its rules (as per section 21(3) of FSMA) and that HTX’s website was still accessible to UK consumers; there were no blocks or controls to prevent UK consumers from seeing promotions to deal in cryptoassets via HTX, or to act on them.  In fact, in its Particulars of Claim the FCA points out that:

• GBP is an available currency for use on HTX;
• UK photo ID is accepted verification when signing up to HTX; and
• In 2023, there were 4.6 million visits to HTX from the UK and 13,000 visits in 2024 (to end of October). 

The FCA further proved the point by detailing in its Particulars of Claim that a FCA employee had managed to purchase and trade cryptoassets on HTX after providing verification with his UK driving licence.

Absent any remedial action by HTX, the FCA issued proceedings and was granted permission by the High Court to serve the proceedings out of the jurisdiction and by alternative means.  The FCA says that, as at the date of its Particulars of Claim, HTX’s website remains accessible to UK consumers.

HTX’s alleged breaches

In annexes to its Particulars of Claim, the FCA sets out a sample of communications which it relies on as breaches of its financial promotions rules. These communications are taken from HTX’s website or from the social media platforms through which HTX promoted its business.

Examples of illegal communications cited by the FCA include:

• “Sign up, trade, and earn up to 1,200 USDT” above a box saying “Register Now”.
• “Grab a sure-win reward of up to 2,024 USDT”.
• “Buy Bitcoin in a minute” and “Learn spot trading in seconds” (on a page of HTX’s website which includes tutorials on how to trade).

The FCA states that these communications were accessible to users in the UK and were capable of being acted on by such users, and accordingly were capable of having an effect in the UK and were not only directed at persons outside the UK.  In its press release the FCA says that “[s]ince issue of the proceedings, HTX has taken steps to restrict new UK customers from registering an account. However, existing UK users can still log in and access unlawful financial promotions, and HTX has given no assurance that the changes will be permanent. The FCA therefore remains concerned that the risk of ongoing breaches continues”.

The FCA notes in its Particulars of Claim that communications on certain social media platforms are no longer capable of having an effect in the UK due to the platform voluntarily blocking UK users from accessing the content.

Persons unknown

In its Particulars of Claim, the FCA says that, despite requests, HTX has not volunteered its corporate identity to the FCA and in its press release the FCA refers to HTX’s “opaque organisational structure” and states that “[r]epeated attempts…to engage with HTX have been ignored”.  In addition to bringing proceedings against Houbi Global SA (now HTX) as the first defendant, the FCA is also pursuing persons unknown as the second to fifth defendants, being persons who (i) own and control HTX, or (ii) operate HTX, or (iii) control promotions on behalf of HTX on any of the social media platforms, or (iv) who may in the future become any of these persons. 

The FCA has posted the key claim documents on its website in accordance with the court order granting service by alternative means in relation to defendants who fall into (iv) above.

What is FCA seeking?

The FCA is seeking an injunction pursuant to section 380 of FSMA to restrain the defendants from communicating financial promotions in breach of section 21 of FSMA, and a declaration that the first to fourth defendants have contravened section 21 of FSMA.

We are continuing to monitor developments. If you would like to discuss this article or any of the issues raised within it, please get in touch with your usual contact at Hogan Lovells or one of the contacts listed.

Authored by Daniela Vella and Jennifer Dickey.