UK Treasury Crypto Regulations Would Resemble Traditional Finance Guidelines

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Crypto operations have to implement AML regulations and controls like other financial sectors. Organizations serving in the crypto industry must fulfill their AML and KYC obligations during customer account opening. Sanction Scanner’s products automate the AML compliance processes of UK crypto exchange companies with powerful and flexible API support.

cryptocurrency regulation uk

The Government will give the FCA powers to make rules applying to financial promotions communicated in reliance on this exemption. These are likely to mirror existing FCA financial promotion rules which are intended to ensure that communications are clear, fair and not misleading. Typically this will mean including risk warnings and product information. Trading venues will be required to prescribe detailed requirements for disclosure documents for the admission of cryptoassets in accordance with principles established in the FCA’s rulebook.

Bloomberg Markets The Close

But in contrast, 46% of the respondents don’t understand how crypto works. EU MiCA does not address crypto lending at this stage but the EU plans to keep regulation of this area under review. This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice.

  • Regulators are adopting a “same risk, same regulatory outcome” approach, which is designed to standardize conditions across cryptoasset firms and traditional financial services firms.
  • This will capture UK firms which provide cryptoasset activities to persons located anywhere, and any firms outside of the UK which offer cryptoasset activities to UK persons.
  • Firms that are currently registered with the FCA for AML purposes will need to apply for a separate and fresh registration as a financial institution, with permission to undertake specified cryptoasset activities.
  • Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day.
  • Regulators in the UK prefer the term ‘cryptoasset’, rather than ‘cryptocurrencies’, as it captures a broader range of tokens than just those intended to operate as a means of exchange.
  • In line with the approach applied to securities, the UK Treasury states that it does not intend to directly regulate the “creation” of unbacked crypto-assets under financial services regulation.

Businesses already registered with the FCA for AML compliance purposes will need to apply for full authorisation at the appropriate time. HMT has proposed to establish an issuance and disclosures https://xcritical.com/ regime for cryptoassets based on the approach taken in the forthcoming Public Offer and Admissions to Trading Regime. This will be tailored to accommodate the specific attributes of cryptoassets.

The UK is planning ‘robust’ new cryptocurrency regulations after the FTX exchange collapse

However, at this stage there are no agreed metrics for measuring the environmental impact of cryptoassets. As mentioned above, the call for evidence is seeking views on whether advising and portfolio management activities in respect of cryptoassets should also be brought within the U.K. The Treasury also wants to include a market abuse regime to prevent illicit activity from happening and to sanction practices that manipulate prices via pump and dump schemes, fake activities such as wash trading or anticipating trades through front running. These new crypto-related regulated activities are similar in scope to existing FSMA regulated activities performed in relation to investments and other financial products. The Treasury recognises that the crypto sector does not map identically to the securities sector and, in particular, for some tokens there will be no centralised issuer. In relation to this the Treasury Consultation states that where there is no issuer (e.g. Bitcoin), the trading venue would be required to take on the responsibilities of the issuer if they wish to admit the asset to trading.

This was highlighted by Innovate Finance in its submission to the Treasury Committee inquiry into the cryptoasset industry, on which Shearman & Sterling advised. Dealers, liquidity providers, agency brokers, specialist cryptoasset firms and large traditional financial services firms offering intermediation services for cryptoassets may need to apply for cryptocurrency regulation uk authorisation. Firms which deal, arrange deals, or make arrangements with a view to transactions, in cryptoassets will fall within the authorisation regime. Applications will need to include details such as business plans, organisational and governance arrangements, controls and risk management, cybersecurity, outsourcing and financial resources.

U.K. Lawmakers Vote to Recognize Crypto As Regulated Financial Instrument

However, FMIs, which are perhaps in one of the most heavily regulated financial sectors, have, to date, generally steered away from attempting to risk-manage cryptoassets. A clearing house or settlement service which only covers the cryptoasset sector might not qualify to register as a CCP. As a result, HM Treasury recognises that the clearing and settlement of cryptoassets may need to be regulated in the future. There could, at a later date, be a public policy imperative for FMIs that provide clearing or settlement services for cryptoassets on a systemic scale to be regulated. At the moment, clearing and settlement services are not widely used by cryptoasset exchanges, but the situation is being monitored.

cryptocurrency regulation uk

In 2019, the FCA published two qualitative research reports exploring the motivations and behaviours of consumers buying cryptoassets to help identify areas of potential harm.At this time, cryptoassets were not widely bought or used and so harm was deemed minimal. The British government laid out plans in February to regulate cryptoassets and opened its suggestions up for consultation. Under the Financial Crimes Enforcement Network , crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity.

Regulatory approach

It will clearly be a challenge for the FCA to make and enforce rules requiring clear and sufficiently prominent disclosure by cryptoasset firms whose investments are not protected by FSCS, since most consumers assume this to be a corollary of FCA authorisation. If FSCS does not compensate investors, the investors who lose out are likely, as seen in recent history, to institute proceedings against the FCA or at the Financial Regulators Complaints Commissioner , seeking compensation from the FCA itself. It has attempted to introduce new rules limiting its liability , but these were not progressed following adverse reactions (see the FCA’s board minutes). Recently, the FCA was found to have acted unlawfully in introducing other rulemaking in this area.

cryptocurrency regulation uk

All UK crypto exchanges need to be FCA registered, however some can obtain e-licenses instead of registering under the FCA. The FCA has shown its teeth in January 2021, when it banned retail cryptocurrency derivatives in order to protect consumers from market volatility. Unfortunately, the cautionary term “not your keys, not your crypto” has reached its realization in Court. Another one of the key issues highlighted by these incidents is the lack of legal requirements for crypto exchanges to provide proof of asset pools and reserves that demonstrate the health of the exchange, in direct contrast to how bank or financial services insurance works.. This has led to a lack of trust and confidence among consumers and regulators, which has directly impacted the valuation and user integration of these exchanges. The proposed bill aims to address these concerns by introducing requirements for certain disclosures to be made by crypto exchanges to consumers and regulators, which includes information about their assets and liabilities and financial health.

Government

Although cryptoassets are out of scope, the sandbox is expected to allow firms to experiment with DLT for the purposes of settlement under a modified and controlled regulatory regime. Relevant activities would include facilitating backed and unbacked borrowing of crypto, or borrowing fiat currencies with crypto as collateral. Firms that operate a cryptoasset lending platform will need to submit detailed applications for authorisation, including describing the persons who are lending and borrowing assets and how their liabilities are to be met at any point in time. There will be prudential, operational resilience and governance requirements, including an obligation to monitor and manage liquidity funding risks across different time horizons and stress scenarios.

UK Financial Services and Markets Bill 2022

One of the key highlights of the latest regulatory framework is the prerequisite of Crypto asset issuers to disclose all documents that will enable users to make informed decisions. It is a strong step towards ensuring that Crypto project developers live up to their claims and do not create rug-pull situations which have negatively impacted the industry before. Some in Congress would like to see a comprehensive new framework put in place that would allow the industry to thrive, while financial market regulators are cracking down on a space that’s awash with concerns over money laundering, scams and cybercrime. Although cryptocurrency is legal in the UK, there are still some concerns that should be taken into consideration when you want to do activities that involve crypto assets. Although as believers in what blockchain technology can do for the world we find it an enticing thought, it is far from reality.

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