Cryptoasset Promotions in Sport

Stuart Andrew Excerpts

Tuesday 8th November 2022 Westminster Hall

[The Parliamentary Under-Secretary of State for Digital, Culture, Media and Sport (Stuart Andrew)]

It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell) for securing the debate. It is clear that he and I share a passion that everyone should be able to enjoy sport safely. That is ultimately one of the things that has motivated him to secure this debate.

We both understand how important it is to protect the integrity of our sports as well as the fans, who are their lifeblood, frankly. In my first few weeks in this job I have been learning an awful lot, but I would say that in the last hour I have learned even more. I am certainly grateful for the focus on this very important area. It will be informing a number of areas I am currently looking at.

It is a privilege as the Minister for Sport to be able to champion a sector that means so much to so many fans across the country, plays such an important part in local economies and has such a rich history in each of our communities. We would all agree that for those reasons and more we should ultimately encourage innovation in sport. Innovations that can harness emerging technologies, providing both new commercial opportunities for sport and greater engagement for fans, should be embraced. That being said, any such innovations should be implemented responsibly, in line with any relevant regulation, and with transparency in how they are advertised and promoted.

As I mentioned in last night’s Adjournment debate on the governance and financial sustainability of English football clubs, fans are the lifeblood of sports clubs. That is why they were the first people I met when I took on this role. I met representatives from the Football Supporters’ Association as well as a number of club supporters’ trusts. I listened to their perspectives, because their needs must be understood and protected and should be central in any decisions we take. That way, we can ensure a sustainable, thriving future for sport in this country.

As part of the Government’s ongoing work on football regulation, we are committed to breaking the cycle of inappropriate ownership, financial instability and poor governance practices. I join my hon. Friend the Member for Newcastle-under-Lyme in congratulating and thanking our hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) for the amazing work she has done with her review.

However, engaging with fans’ groups goes wider than that, and the growing interest in, and promotion of, cryptoassets issued by sports clubs should clearly keep fans at the forefront. The enthusiasm of fans for sports memorabilia and collectibles is not new, and it is no surprise that this enthusiasm remains undimmed in the digital age through new technologies. It is clear to see that there is a hugely positive potential for cryptoassets in a fan market, with such a latent appetite for merchandise, memorabilia and other opportunities to show one’s colours.

A number of sports clubs and competitions have taken early steps into partnerships with cryptoasset businesses, or in developing their own assets. As we have heard, fan tokens have the functionality of making fans feel more immediately involved in their clubs on a digital platform by giving them a vote on matchday music or entering them into draws for signed shirts. Non-fungible tokens bring traditional collector opportunities into the 21st century, with opportunities to purchase digital cards. That can be at club level or relate to evolving digital assets that chart a team’s progress, such as the recent product launched by the sponsors of the 2022 World cup. Sponsor relationships can be as responsibly explored as any other corporate partnership—none of these alone represents a significant risk that needs to be mitigated—but as we have heard today, not all projects launched by the sector thus far have delivered on their potential or done so in a transparent manner.

As I have said, any promotions of cryptoassets in sport should have fans’ interests at their heart and must be transparent about any risks, and the sector should be mindful of that as it looks to further develop its digital offers. Cryptoassets should not be viewed in isolation from their wider relationship with a club’s fan base and our normal expectations of responsible corporate relationships. It is reassuring to see that clubs are being held accountable on that point—for example, as we have heard, the Advertising Standards Authority ruled that some of the adverts promoting Arsenal’s fan tokens through their partnership were “misleading” and “irresponsible”, with insufficient warnings of the risks involved.

My hon. Friend the Member for Newcastle-under-Lyme mentioned the incredibly damaging collapse of Football Index, which is an example of the four main problems that he has highlighted. Our independent review into the regulation of Football Index identified lessons to be learned by the Gambling Commission and the Financial Conduct Authority. The commission has taken action, including strengthening its approach to novel products.

As we have heard, cryptoassets can come in many forms, ranging from cryptocurrencies to non-fungible tokens. It is important to note that the Government are taking action on the regulation of cryptoassets and their promotion. In July, the Government set out our vision for the future of the financial services sector, which included a plan to ensure that the UK remains at the forefront of technology and innovation. That was one of the four key components of the vision, with the ultimate aim of building a financial services sector that continues to be one that the rest of the world looks towards.

The global and UK cryptoasset markets have evolved rapidly in recent years. In 2021, the FCA estimated that 2.3 million people in the UK hold cryptoassets—up from 1.9 million in 2020. The Government see enormous potential in this innovative market, which needs to be carefully balanced against the risks. We have set out our firm ambition to make the UK a global hub for cryptoasset technology and investment. We want to ensure that firms can invest, innovate and scale up in this country, and we have announced a number of reforms that will see the regulation of cryptoassets and aspects of tax treatment evolve. Our clear message to cryptoasset firms is that the UK is open for business, and these announcements are in line with our objective to create a regulatory environment in which firms can innovate while, crucially, maintaining financial stability and regulatory standards, so that people can use new technologies both reliably and safely. That is essential for continuing confidence in the financial system.

The Government established the cryptoassets taskforce in 2018, consisting of the Treasury, the Bank of England and the Financial Conduct Authority. The taskforce’s objectives include exploring the impact of cryptoassets and the potential benefits and challenges of distributed ledger technology in financial services, and assessing what, if any, regulation is required in response. To protect consumers, the FCA has banned the sale of cryptoasset derivatives to retail consumers. The Government launched a new anti-money laundering and counter-terrorist financing regime in this area in 2020. The Government will continue to monitor the wider cryptoasset market and stand ready to take further regulatory action if required.

The Government are taking action on the regulation of cryptoasset promotions. In January 2022, the Government published a response to a consultation on proposals to bring certain cryptoassets into scope of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, which would ensure those promotions are fair, clear and not misleading. The measure aims to improve consumer understanding of the risks and benefits associated with such purchases and to ensure that promotions are held to the same standards as financial services products with similar risk.

The Government have been clear that UK authorities are committed to supporting the growth of the sector in a safe and competitive manner. Certain cryptoassets are already subject to FCA financial promotions rules. A wider array of unregulated cryptoassets, such as bitcoin, are not subject to similar regulation for financial promotions. The Government’s proposed measure to expand the scope of the financial promotion order to capture qualifying cryptoassets will bring most of these unregulated cryptoassets into financial promotions regulation. That forms part of the Government’s staged and proportionate approach to such regulation, which is sensitive to the risks posed and responsive to new developments in the market.

As is already the case in the application of the financial promotions regime, the Government set the regulatory perimeter while detailed rules for the regime are determined by the FCA. The FCA’s consultation on its rules closed earlier this year and it will carefully consider representations from firms. The Government will continue to closely monitor market developments and stand ready to take further legislative action if required.

In summary, the cryptoasset market is an emerging and rapidly evolving one. This innovative market has huge potential, but that must be balanced against the risks. The Government are actively monitoring the cryptoasset market and stand ready to regulate where necessary. The same is true for cryptoassets in sport. There is potential for cryptoassets to enhance fans’ experience of sport and make them feel more a part of the clubs they love. However, their use by clubs must be responsible and transparent about any risks involved.

I absolutely recognise the four main problems that my hon. Friend the Member for Newcastle-under-Lyme highlighted. Misleading promotion, consumer protection, due diligence and fan engagement are interconnected factors that must be considered and addressed in the context of cryptoasset promotion in sport. The Government are happy to engage with the FCA and others on these issues in relation to our work on football governance and in respect of sport more broadly.

The Government will continue to monitor the use and promotion of cryptoassets in sport and will factor this into our considerations around the wider market and its regulation. I will certainly raise the important issues that have been highlighted today with my Treasury colleagues. I assure the hon. Member for Strangford (Jim Shannon) that I will ensure that the issues for Northern Ireland are highlighted. I will come back to the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) on the current legislative options that may be available following the meeting I have with him.

I knew that I would be asked about the publication of the White Paper. As I said last night, it is a priority for me. I get how important this is to fans. I hope the hon. Member for Manchester, Withington (Jeff Smith) will understand that, as a new Minister, it is important that I get this right and take the time to consider all aspects that have been raised. We are committed to reform, and that will come. Once again, I thank my hon. Friend the Member for Newcastle-under-Lyme for leading this very insightful debate. He has certainly given me even more to consider as I make preparations for the White Paper.