CAI0013
Written evidence submitted by Socios
Executive Summary
We welcome the decision by the Treasury Select Committee to launch an inquiry into crypto-assets. We believe that the opportunity presented by blockchain is significant, both to build new digital communities and to unleash innovation and economic growth. With the right regulatory framework and support from policymakers, we believe the UK has the potential to be at the forefront of this innovative and multi-faceted sector.
A summary of the key points within our response is as follows:
1. Utility tokens, such as Socios.com’s digital tokens referred to hereinafter as “Fan Tokens”, present significant opportunities to build digital ecosystems and create communities - within the sports sector and beyond.
● Fan Tokens bring fans closer to their club - wherever they live - providing them with an ever greater stake in their club’s community and the opportunity to build networks with other fans.
● They also have the potential to boost social inclusion, by giving both overseas and local fans opportunities to engage with their club in ways they’ve never been able to before.
2. We welcome well-designed and appropriate regulation of the sector - and, specifically, utility tokens - and we want to play an active role in informing what this could look like.
● Introducing appropriate regulation is key to increasing transparency, consumer understanding and trust in a newly emerging and multi-faceted sector.
● It is also essential in raising standards, ensuring that strict rules are adhered to across the industry, and reducing bad and irresponsible actors.
● Together, this will help to ensure high levels of consumer protection and the opportunity for the industry to continue to innovate responsibly and sustainably.
3. Regulation of the sector should be proportionate and reflective of the differing level of risk presented by different types of token.
● The crypto-asset sector is varied and multi-faceted, and any regulation introduced by the UK government and regulators should reflect this.
● Treating all crypto-assets equally, and in turn imposing the same regulatory requirements on them, risks creating significant unintended consequences - both in terms of consumer behaviour and understanding, and economic growth and innovation.
● Specifically, utility tokens such as Socios.com’s Fan Tokens, which are inherently low risk, should not be subject to the same regulatory requirements as high risk, highly leveraged crypto-assets elsewhere in the sector, such as security tokens that represent an investment.
● This is an approach that has been taken by other markets and jurisdictions around the world, such as in Switzerland and Spain.
4. The Financial Conduct Authority’s (FCA) proposed blanket application of financial promotions rules on all crypto-assets is disproportionate and likely to have negative unintended consequences.
● We welcome measures to enhance consumer protection, however we have concerns about the proposed application of these rules.
● Under the FCA’s proposals, Fan Tokens - which are not promoted or typically bought and sold as investments, and are therefore inherently low-risk - would be subject to the same requirements as higher risk crypto-assets, including: standardised, mandatory risk warnings, a 24-hr cooling off period, and approval by an authorised firm.
● This is disproportionate to the risk, and could nudge the consumer to spend more, not less, on Fan Tokens, by incorrectly treating them as an investment rather than a fan engagement tool.
Socios.com (“Socios”) is the leading fan engagement and rewards platform in the sports industry. Through digital utility tokens, known as Fan Tokens, we are creating a new form of digital membership for sports fans around the world, giving them access to opportunities related to their teams they’ve never previously had. To date, we have over 1.3m users and have partnered with over 130 major sporting organisations, including several Premier League clubs and top Rugby Union clubs.
The value of Fan Tokens is in the wide range of opportunities that a sports fan can access. When users buy a Fan Token, they are buying a service, in the same way as they buy membership to a club or a gym. Socios allows clubs to deliver more opportunities for fan engagement, via polls on fan community decisions, games and community features. The more fans engage with their clubs and each other, the more they can claim rewards such as signed merchandise, VIP tickets or experiences. These rights and utilities are exclusively available on Socios, irrespective of where the Fan Tokens may be available for purchase, hence Fan Tokens must be transferred to the Socios digital wallet for holders to access these benefits.
We understand that Fan Tokens are a new sector presenting fresh challenges from a policy and regulatory perspective. As such, we recognise how important it is to ensure understanding of our product, and that there are safeguards in place to protect our customers. That is why we are working hard to ensure that Socios meets the highest standards and continues to explore ways to further improve understanding and consumer protection for those who use our platform.
Socios is in a unique position as a global market leader sitting at the interface between crypto-assets and sports. With this experience in mind, our response to the Committee’s call for evidence is focused on addressing those questions within the Terms of Reference most relevant to our business model and expertise, as follows:
● What impact could the use of crypto-assets have on social inclusion?
● What opportunities and risks could the use of crypto-assets—including Non-Fungible Tokens—pose for individuals, the economy, and the workings of both the public and private sectors?
● How effective have the regulatory measures introduced by the Government - for instance around advertising and money laundering - been in increasing consumer protection around crypto-assets?
● Is the Government striking the right balance between regulating crypto-assets to provide adequate protection for consumers and businesses and not stifling innovation?
● Could regulation benefit crypto-asset start-ups by improving consumer trust and resilience?
● How are Governments and regulators in other countries approaching crypto-assets, and what lessons can the UK learn from overseas?
The crypto-asset sector is broad and multi-faceted, with a range of different distributed ledger technology assets included within it. Broadly, these can be divided into three categories: exchange tokens, security tokens, and utility tokens (which include Fan Tokens).
Utility tokens grant holders access to a current or prospective good or service, but do not grant holders any rights that are the same as those granted by “specified investments" in accordance with the Financial Services and Markets Act 2000 (Regulated Activities). These tokens can, for example, be issued centrally or be decentralised, give access to a current or prospective good or service in one or multiple networks and ecosystems, or be used as a means of exchange. They can be fully transferable or have restricted transferability.
Fan Tokens were classified by the Swiss Financial Market Supervisory Authority (FINMA) as utility tokens in May 2021, a position that has also been backed by UK legal opinion. Importantly, Fan Token holders cannot vote upon any management, strategic or corporate affairs decisions of the sporting organisations or other matters where decision making powers are ordinarily vested in shareholders and directors. Fan Token holders are not entitled to receive any form of profits or dividend or other rate of return (and hence Fan Tokens are not classified as security tokens).
Socios partners with sporting organisations to offer these Fan Tokens to its fan base. Socios provides the technology, while the sporting organisations ultimately decide the rights and entitlements given to token holders. One Fan Token is enough to participate in every poll or other fan engagement in-app feature linked to the respective team. In this sense, Fan Tokens are not consumed upon participation in the polls but may be used for as long as the holder remains in possession of it (akin to a membership card).
1. THE OPPORTUNITIES PRESENTED BY CRYPTO-ASSETS, INCLUDING TO INDIVIDUALS, THE PRIVATE SECTOR AND THE ECONOMY
As outlined in Section II above our response to this question is focused primarily on utility tokens - and specifically Fan Tokens - rather than the wider crypto-asset sector.
1.1. The benefits to sports fans around the world
1.2. Fan Tokens bring fans closer to their club - wherever they live - providing them with an ever greater stake in their club’s community and the opportunity to build networks with other fans. Not only does this help to build digital ecosystems across borders but has the potential to boost social inclusion - by giving both overseas fans and local fans, particularly those who are not season ticket-holders, opportunities to engage with their club in ways they’ve never been able to before.
1.3. Token holders are valued and can express their support by:
1.3.1. Voting in binding polls which shape how the clubs they follow deliver for fans.
1.3.2. Participating and competing with fellow community members in a host of features including score predictors, token hunts, games and quizzes and check-ins.
1.3.3. Receiving access to token gated events, commerce platforms or prizes - for example, tickets to matches, access to dressing room cameras, training sessions, or merchandise pre-sales.
1.4. The benefits to sports organisations and clubs
1.5. Through Fan Tokens, our partners are able to access and utilise Socios’s technology, scalability and distribution power, enabling them to better understand their fans and develop new and more effective ways to connect with them. By bringing together fan participation with rewards, Socios enables clubs to tailor fan experiences to individuals’ behaviours and preferences as supporters. This in turn helps to spread the club’s culture throughout their global fan bases - including in places where they didn’t previously have a presence.
1.6. As Fan Tokens provide access to token-gated communities, they represent a way for clubs to offer experiences and access to fans directly. This offers the potential for clubs to become more self-sustainable over time and build digital revenue streams that genuinely benefit fans through engagement opportunities.
1.7. A further key benefit is that clubs can retain proof of authority control over the blockchain. This means they can build and have oversight of the community and assets themselves, setting them up to have greater control and also a share of revenue over IP and digital products, rather than sharing this with other third parties.
1.8. The transparency provided by the underpinning technology
1.9. In addition to the real-life benefits outlined above, blockchain, the technology on which crypto-assets operate, offers multiple benefits. A key benefit is that it is immutable - it cannot be changed - which ensures that votes through the Socios platform are fully transparent and fair. This means that fans can vote with the confidence that the poll is genuine and cannot be altered.
1.10. Beyond Fan Tokens, this transparency holds many benefits for a wide range of different use cases and potential use cases. We are currently exploring projects with leading philanthropic groups to mobilise charitable communities, giving them a greater stake and role in the community and also providing transparency to the charity sector.
1.11. In more general terms, blockchain has the potential to streamline processes, offer lower costs, enhance transparency and improve security for all those involved.
2. THE RISKS PRESENTED BY CRYPTO-ASSETS, INCLUDING TO INDIVIDUALS, THE PRIVATE SECTOR AND THE ECONOMY
As above, our response here is focused primarily on utility tokens - and specifically Fan Tokens - rather than the wider crypto-asset sector.
2.1. It is important to state that utility tokens are intrinsically low risk based on their nature and the rights they offer a token holder. Nonetheless, there are generic risks that apply to crypto-assets overall which we address further here, namely anonymity (to an extent), consumer protection, and money laundering.
Socios’ approach to responsible operation
2.2. We acknowledge that this is an industry that is less readily understood than more traditional industries, and Socios has therefore taken several steps to limit risks to those using our platform, by increasing consumer protection and the general understanding of our product and platform.
2.3. Although Socios is built on blockchain technology and customers do need to use the Chiliz (‘CHZ’) digital currency to purchase Fan Tokens, we are in no way comparable to a crypto exchange. The CHZ digital currency is used as the native token for Socios, providing a common measure of value across our global community and providing an efficient and transparent payment mechanism for purchasing Fan Tokens regardless of local currency. CHZ is the only cryptocurrency, besides Fan Tokens, that can be purchased through our app. Depending on the level of expenditure, fans need to complete Know Your Customer (KYC) and identification requirements prior to purchasing CHZ (see para 2.7 below for more information). On Socios, CHZ are used solely to purchase Fan Tokens, and we do not expose our customers to any other cryptocurrencies. No security tokens or financial instruments are available for purchase or trading on Socios, nor any margin or futures trading.
2.4. We take seriously our responsibility to educate fans about our product. Fans are reminded that Fan Tokens are meant to be used for entertainment and fan engagement purposes only. At the same time, they are made aware that Fan Tokens do not represent financial instruments or any form of investment product.
2.5. As a utility token, the value that each Fan Token represents to the holder is dependent on the value they place in the service, i.e. the polls, fan engagement activities and rewards on offer. While trading is not the primary use case of Fan Tokens, a secondary market does exist. We therefore remind customers that trading of crypto-assets carries a certain degree of risk, and urge any customer wanting to trade their Fan Tokens to exercise caution, trade responsibly, and seek professional advice if ever in doubt.
Addressing anonymity and protecting consumers
2.6. We have in place several measures, including on age verification and KYC procedure, to minimise the risks of any illicit or illegal activities being conducted on Socios. We have four levels of KYC checks in order to access different features of the app, including the trading function. Our KYC procedure is designed with a risk-based approach, so that users are subject to thresholds which differ depending on whether they come from a high, medium or low risk jurisdiction.
2.7. As part of this, our KYC procedure includes deposit thresholds, which mean that, as a user’s spend increases, we ask for more supporting documentation and further identity verification. The maximum limit of expenditure is tailored depending on the source of wealth documentation submitted by the users. We also require users to prove the source of their funds to ensure that they can both afford what they want to spend, and that the funds are not coming from illicit activities.
Anti-Money Laundering (AML) measures
2.8. Since Socios launched, we have implemented an AML protocol which adopts a risk-based approach largely modelled on EU AML requirements and Financial Action Task Force recommendations. This policy is designed to reduce risk, protect users and increase security by detecting any illicit or illegal activities or transactions through our platform by using third party tools such as Chainanalysis, the blockchain data platform.
2.9. We comply with all applicable AML rules in the global markets in which we operate (outlined further in paragraph 6 below).
Raising standards across industry
2.10. More broadly, we want to play our part in setting high standards and therefore reducing risk across the industry as a whole. That is why, earlier this year, we wrote to the Premier League (see Appendix I) to set out our perspective on the standards that all clubs should expect of partners operating in the blockchain and crypto-asset space. The suggested Code of Practice included a proposed standard on different areas including consumer protection, transparency, governance and marketing. Taken together, we believe these measures provide a basis for enabling clubs to form responsible partnerships with actors in this space.
3. OUR VIEW ON INCOMING REGULATORY MEASURES AND FUTURE REGULATION
Our headline view on regulation of utility tokens
3.1. We welcome well-designed and appropriate regulation of the sector and we want to play an active role in offering guidance, from our experience operating globally, as to what this could look like. Introducing appropriate regulation serves a number of important purposes. First, it is critical in increasing transparency, consumer understanding and trust in a newly emerging and multi-faceted sector. Second, it is essential to raising standards, ensuring that strict rules are adhered to across the industry, and eliminating bad and irresponsible actors. Together, this will help to ensure high levels of consumer protection and the opportunity for the industry to continue to innovate responsibly and sustainably.
3.2. Since cryptocurrency markets are decentralised and largely unregulated across the globe, Socios is not governed by any harmonised regulatory framework globally or on a regional (EU) level. However, since the platform launched, we have operated as if we were a regulated company whilst ensuring compliance with any country-specific regulations, as applicable. This includes complying with EU AML requirements, and becoming registered in key markets. For example, in August, we secured regulatory approval in Italy as a service provider of virtual currencies and digital wallets for our fan engagement and rewards platform. This overall approach has meant that we have always operated within strict, self-imposed parameters.
3.3. We believe that any regulations governing crypto-assets should be carefully designed, with regulators adopting a risk-based approach that is reflective of the level of risk attached to the crypto-asset. Not taking a risk-based approach risks creating a deterrent effect which would hinder innovation, whilst also not accurately presenting the risk level of different assets to consumers. Regulation should therefore be tailored for the different categories of assets mentioned in Section III above, as they present differing levels of risk and require different approaches to regulate them effectively.
3.4. As regulation is rolled out globally, we will continue to work with policymakers and regulators to help implement effective regulation. This is the approach we have taken in the UK, where we have maintained an open dialogue with bodies including the Advertising Standards Authority (ASA) and the Financial Conduct Authority (FCA) in relation to the rules governing the crypto-asset sector (including Fan Tokens).
4. The importance of an approach that is risk-based and proportionate
4.1. We firmly believe that any regulation of the crypto-asset sector needs to be proportionate, risk-based and reflective of the huge variety of tokens that make up the sector. Treating all crypto-assets equally, and in turn imposing the same regulatory requirements on them, risks creating significant unintended consequences - both in terms of consumer behaviour and understanding, and economic growth and innovation.
4.2. For most sports clubs, our Fan Tokens have been priced at £2 during their initial release, and this is now our standard policy. The vast majority of Fan Token holders are fans who hold tokens as a means to engage with the club. In the UK, 74% of consumers hold 5 or less Fan Tokens and 89% hold 25 Fan Tokens or less. The median amount spent is £21, indicating that the vast majority of Fan Token holders are not holding them for investment purposes.
4.3. With this in mind, it would be disproportionate and misleading to apply the same regulatory requirements to a Fan Token as to high risk, higher leveraged crypto-assets present elsewhere in the sector such as security tokens that represent an investment. Instead, risk-based regulatory measures should take into account the utility of the token and what this means for its risk profile - specifically, that the function and value of Fan Tokens is to provide holders with utility, not to be a financial instrument.
4.4. Around the world, utility tokens are not subject to compliance with financial regulations as they are not securities. Indeed, this is exemplified by the approach of FINMA whose position is that utility tokens do not qualify as securities as the focus is on “the fulfillment of access to digital use or service and the capital market reference that typically characterises securities is lacking”. As outlined further in paragraph 6 below, other markets also apply different requirements around registration, AML and consumer protection depending on the nature and level of risk posed by the crypto-asset. We endorse such an approach to regulation of the sector.
5. The Financial Conduct Authority’s (FCA) proposals on promotions
5.1. In January, HM Treasury confirmed its intention to bring certain crypto-assets into the scope of the financial promotions regulations. The FCA subsequently launched a consultation on the rules that would apply to crypto-assets, and other high risk investments. The consultation closed in March and we are awaiting the final rules from the FCA, so the following comments relate to the proposals as set out in the consultation document (correct as of 9 September 2022).
5.2. While we welcome measures to enhance consumer protection, we have concerns about the proposed application of the rules. Under the FCA’s draft proposals, Fan Tokens would be classed as ‘Qualifying Crypto-assets’ and subject to financial promotion rules, including mandatory risk warnings and a 24-hour cooling off period for consumers. We believe that the blanket application of the proposed FCA rules to all types of crypto-assets - particularly Fan Tokens and other utility tokens which are typically not promoted or bought and sold as investments and are therefore inherently low-risk - is disproportionate and likely to have negative unintended consequences.
5.3. Like other utility tokens, Fan Tokens are not promoted as investments and this is made amply clear with messaging used and disclaimers included in all marketing materials promoting the Fan Tokens. Indeed, Socios strongly advises caution to any individual who chooses to use Fan Tokens for any other reason than their intended fan engagement purpose. Subjecting the promotion and sale of Fan Tokens to the proposed FCA rules, that are intended for investment and financial products, will convey the implicit message to consumers that:
5.3.1. Fan Tokens are investments
5.3.2. It may be appropriate to hold up to 10% of your wealth as Fan Tokens
5.3.3. Fan Tokens are high risk (and therefore potentially high reward)
5.4. The suggestion that a typical sports fan who wishes to spend, for example, £20 on Fan Tokens in order to be able to vote on the colour of a football team’s new strip (and other matters) should have to undertake a 24 hour cooling off period, provide information on their finances, provide undertakings regarding their (actual) investments and answer questions about financial risk is disproportionate to the risk and carries the potential of nudging the consumer to spend more, not less, on Fan Tokens. This would treat Fan Tokens as an investment rather than a fan engagement tool, which is its primary and stated function.
5.5. To substantiate this view, Socios commissioned primary research, which we shared directly with the FCA, to test the impact of risk warnings (including the FCA’s proposed warning as well as an alternative form of words) on promotions of different types of crypto-asset products - specifically, Fan Tokens and Bitcoin. The key finding was that among both samples from the general population and crypto enthusiasts, the perception of Fan Tokens as an investment (something which they may make money from) increases when the FCA warning is present on the promotion. This is most pronounced amongst crypto enthusiasts. We see an increase in the interest in buying Fan Tokens when risk warnings are present; while the reverse is true when the warning language is applied to a typical crypto-asset product (in this example, Bitcoin).
5.6. This behaviour, therefore, demonstrates the counter-productive nature of the proposed FCA warning, in that it categorises Fan Tokens as an investment product, at least in the eyes of crypto enthusiasts. Furthermore, this could be misleading to consumers, giving them the impression via the warnings that they should be approached as an investment and that they should expect to (potentially) make money. This would be despite Socios’s marketing activities themselves in no way promoting tokens as investment products, and instead as utility tokens for fan engagement purposes.
5.7. Whilst the FCA must implement the statutory framework implemented by HM Treasury and Parliament, we firmly believe that a risk-based approach should be taken and therefore the rules need to differentiate between crypto-assets traded for investment purposes and those promoted and acquired for non-investment purposes. In addition to the potential adverse consequences outlined above, disproportionate regulation of utility tokens risks stifling an innovative medium for improving global sports fan engagement and placing an unnecessary burden on fans and businesses within this space.
5.8. Because the crypto-asset sector is innovative, with new products developing daily, it is understandable that HM Treasury would not seek to use legislation to impose different requirements on different types of crypto-assets. Such an approach would run the risk of becoming outdated quite quickly and lack the flexibility to respond to innovation. Sensibly HM Treasury has left it to the FCA to differentiate between different types of qualifying crypto-assets within the FCA rules. The HM Treasury consultation response states that "Any eventual legislation is intended to be accompanied by any necessary FCA rules or guidance appropriate for the regime". It would be wrong for the FCA to infer that because legislation does not differentiate between different types of qualifying crypto-assets, FCA rules should not either. As such, we encourage the FCA to develop rules which are risk based and appropriately differentiate between products which pose vastly different risks.
6. LESSONS FROM OTHER COUNTRIES AND JURISDICTIONS
6.1. Socios operates in over 147 jurisdictions around the world and is therefore well-placed to comment on the various regulatory regimes that apply. As mentioned above, around the world, utility tokens do not fall within the scope of any financial regulatory regimes because regulators have recognised the utility rights attached to the Fan Tokens give the tokens their characteristic as utility tokens rather than any financial instrument. However, governments and regulators have taken steps to regulate virtual assets generically in relation to specific issues, including around AML/KYC, and advertising and promotion restrictions which predominantly seek to protect consumers’ interests.
6.2. In almost all cases, in our experience, other governments and regulators have recognised the distinction between crypto-assets, which pose financial risks and exposure, and Fan Tokens, and introduced regulations that are reflective of this distinction - something we would encourage the UK government to follow. This is true of the approach taken in Switzerland, Spain, Lithuania, Portugal and France. In these countries, utility tokens are not classified as a security token under their respective regimes, and issuers of crypto-assets are subject to certain AML and KYC checks depending on the level of risk.
6.3. As such, Socios’s operations and activities have been closely scrutinised by regulators outside the UK. In general, the focus has been on monitoring transactions and preventing money laundering activities through comprehensive AML processes and compliance.
Switzerland
6.4. Switzerland principally distinguishes between three different classes of crypto-assets that are all regulated differently: (i) payment tokens, (ii) utility tokens and (iii) investment tokens. Fan Tokens were classified by the Swiss Financial Market Supervisory Authority (FINMA) as utility tokens in May 2021. Utility tokens are not currently treated as securities by FINMA, provided: (i) their sole purpose is to confer digital access rights to an application or service; and (ii) the tokens can actually already be used in this manner when they are issued. If these two conditions are met, the typical "connection with capital markets inherent to securities according to FINMA, does not exist”. FINMA points out that it will qualify utility tokens as securities if they fully or partially "have the economic function of an investment".
Spain
6.5. The Spanish government has taken steps to protect the rights of investors and consumers in relation to crypto-assets. On 17 January 2022, the Spanish National Securities Market Commission issued a circular relating to the advertising of crypto-assets presented as investments (the "Circular").
6.6. The Circular regulates advertising activities for crypto-assets that are aimed at investors or potential investors in Spain and that are offered or marketed as investment products. Rightly, certain advertising activities are excluded from the scope of the Circular, including the advertising of crypto-assets that serve exclusively to digitally access a product or service which is only accepted by its issuer or its contractually-related providers (utility tokens). We believe the FCA should adopt a similar approach.
6.7. In essence, CNMV, the Spanish regulator, recognises that Fan Tokens are not to be classified as security tokens or financial instruments in light of the utility rights attached thereto and therefore fall outside the scope of any regulation relating to securities and their new marketing rules. Notwithstanding, the Bank of Spain has implemented a registration process for all crypto-asset operators (irrespective of the nature of the crypto-assets) which essentially requires all operators to adhere to strict AML policies and procedures in line with Spanish AML regulations which includes the deployment of blockchain transaction tools and AML training being delivered to the responsible personnel. Additionally, registered crypto providers have an obligation to report to the Spanish authorities any suspicious transactions concerning Spanish residents.
Lithuania
6.8. In Lithuania, Socios is registered and therefore authorised by the Financial Crime Investigation Service (Finansinių nusikaltimų tyrimo tarnybai (FNTT)) to offer custody services as well as exchange of virtual asset services. Through such registration, Socios was required to appoint an MLRO to oversee compliance with the Lithuanian AML regulatory framework after having updated its AML policies in line with the local Lithuanian legislations. Naturally, Socios is under the obligation to report any suspicious transaction that may be identified involving Lithuanian residents using the Socios platform.
Portugal
6.9. Socios is in the process of registering with the Bank of Portugal. Portugal has adopted a similar approach to Spain, and the registration entails visibility of Socios's business plans within Portugal, including visibility of the AML policies and procedures as well and blockchain transaction tools and other measures in place to identify any suspicious transactions and activities that may take place on Sociosand ensure these are duly reported to the relevant authorities.
France
6.10. Socios has submitted its French DASP registration application, with the focus being on compliance with AML regulations. As part of this, Socios was required to (i) appoint an MLRO and MLCO (ii) ensure compliance with French AML regulations and (iii) report any suspicious transactions to the French regulatory authorities (Tracfin). The overall policies and procedures relating to the way Socios conducts its business operations have also been submitted for the scrutiny of the AMF authority responsible for such registration.
September 2022
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Appendix I: Letter to Premier League
Mr Will Brass
The Premier League
Brunel Building
57 North Wharf Road
London
W2 1HQ
Date: 21 January 2022
Dear Mr Brass,
I’m writing from Socios.com, the fan engagement platform, where I am the Chief Operating Officer.
We were pleased to read in The Times (29 November) that the Premier League will investigate partnerships between blockchain and cryptoasset companies and member clubs. As the leading blockchain provider for sports, we take our responsibilities seriously and we believe it is our responsibility to exercise vigilance and set standards for others in the market to follow.
As you may recall from our previous engagement, Socios.com has partnered with over 100 major sporting organisations from across the world, including several Premier League clubs. Through Fan Tokens we are creating a new form of digital membership for fans, giving them access to opportunities related to their teams they’ve never previously had.
We understand that we represent something new and different. We’re a young company, founded in 2018, yet have grown to have over one million active users. With that in mind, we recognise how important it is to ensure understanding of our product, and that there are safeguards in place to protect our customers. We are also acutely aware of bad actors in this space who are actively and irresponsibly focusing on trading – which is not the purpose of Fan Tokens. For these reasons, we are supportive of any plans to ensure Premier League clubs only partner with companies who adhere to the highest standards of consumer protection, transparency and governance.
Of course, we recognise that you are looking at the entire blockchain and cryptoasset sector, of which we are just one voice. Nonetheless, as the Premier League continues its investigation and considers its next steps, we wanted to share our perspective on the standards – essentially a Code of Practice - that all clubs should expect of partners operating in the blockchain and cryptoasset sectors. We hope this will be a helpful contribution to this important work, and we would be happy to meet to discuss further if that would be helpful at any stage.
Marketing and communications
Regulatory alignment
● Firms must align with all applicable advertising guidance and regulation. This includes alignment with relevant advertising codes overseen by the Advertising Standards Authority, including any future guidance on cryptoassets.
Transparency
● Communications with consumers and partner clubs must be fair, clear and not misleading.
● Any communication at the point of purchase, sale or trading must include a disclaimer making consumers aware that it is not risk-free.
● Material changes that impact consumers or partners, such as changes to Terms and Conditions, should be clearly communicated to them ahead of time.
Consumer protection
Age verification
● Firms must have age verification measures in place to limit the trading of Fan Tokens to over-18s on their platform. This supports the Football Association’s own work on safeguarding in a digital world.
Education
● To improve understanding and awareness, firms must supply educational resources free of charge to all consumers engaging with the platform.
Regulatory alignment
● Firms must comply with all applicable national regulations on cryptoassets.
● To reduce risk and protect users, firms must have robust Know Your Customer (KYC) and anti-money laundering (ALM) protocols in place.
Protection of assets
● Firms commit to safeguarding users, including through the implementation of responsible deposit thresholds and working with clubs to set caps on the amount of Fan Tokens that one consumer can buy.
● Firms must have in place sufficient safeguards to protect any assets held through the platform.
● Firms must have safeguards in place to maintain IT infrastructure to prevent loss and damage of personal information in line with relevant regulations, including GDPR.
Complaints
● Firms must have a clear and fair complaints procedure which is readily available to consumers.
Governance
Company structure
● Firms must list the full senior management team, registered office, and establishment date on the company website.
● Firms must carry out thorough due diligence on any potential investors in the business.
We believe that, taken together, these measures provide a basis for protecting fans and enabling Premier League clubs to form responsible partnerships with actors in this space. We're working hard to ensure that Socios meets the highest standards and will continue to explore ways to further improve understanding and protection for fans.
In the meantime, we are committed to maintaining an open and ongoing dialogue with all regulators, including the Financial Conduct Authority and the Advertising Standards Authority. We are engaging directly with the FCA at present in order to clarify the nature of our business activities and to ensure full compliance with any applicable laws.
As mentioned, I would be happy to meet to discuss the position put forward in this letter, if that is helpful at any stage. If we can help with anything else in the meantime, please do get in touch.
September 2022
10