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The newly approved group of US spot bitcoin ETFs, including ones issued by BlackRock and Fidelity, have collectively pulled $10bn since their launch in January, according to crypto investment group CoinShares. [1] Any cryptographically secured digital representation of value or contractual rights that— (a) can be transferred, stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology). In practice, this means that firms servicing UK customers from another jurisdiction may need to seek authorisation, subject to certain potential exceptions. cryptocurrency regulations uk Reverse solicitation may be one exception, although HMT notes it should be defined in a way that prevents misuse and regulatory arbitrage. “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires.
Amid bitcoin boom Britain’s FCA scrambles to assemble regulation roadmap by 2026
- Today’s news also means the UK legal sector will be better equipped to respond to new technologies, attracting more business and investment to the legal services industry which is already worth £34 billion a year to the economy.
- Cryptoasset businesses that are registered with the FCA for anti-money laundering purposes will be allowed to issue their own promotions, while the broader cryptoasset regulatory regime is being introduced.
- Crypto natives may also benefit from building out regulatory engagement and second line risk and compliance functions, to engage the FCA on authorisation plans as the detailed rules take shape.
- At the other extreme, some countries have been much more welcoming and even sought to woo companies to develop markets in these assets.
- If this approach is progressed, international firms will face the challenge of navigating multiple divergent frameworks (e.g. UK, home jurisdiction, and other jurisdictional regimes).
- In the UK, we have the Faster Payments Scheme, so there is not as much of an advantage in terms of speed or cost to using cryptoassets to transfer value.
Significant work lies ahead to flesh out the detail and fine-tune these frameworks to the nuances of the crypto industry. The ongoing challenging experience of applying current frameworks – not designed with crypto in mind – to security tokens activities highlights the importance of developing detailed rules and Proof of space guidance for cryptoassets. However, there is a unique opportunity for the industry to support the policy development process and develop suitable regulatory solutions. However, in practice, HMT expects that its new powers will apply to specific groups of cryptoassets, dependent on the activity being regulated rather than by type of cryptoasset. As an illustrative example, exchange tokens could be in-scope for custody services, but outside the perimeter when serviced by lending platforms.
What are the FCA proposals for crypto regulation?
In particular, the Government and FCA’s ‘proactive approach’ aims to balance innovation with consumer protection, fostering a https://www.xcritical.com/ robust and transparent crypto market in the UK. There are notable differences between MiCAR and the UK’s regulatory plans, such as categorisation of cryptoassets, the scope of regulated activities and disclosure obligations for cryptoasset issuers. And so, regulatory divergence is an additional challenge for this global and highly interconnected market. While this market continues to move at pace, UK regulation is progressing under a more gradual, phased approach to include various forms of cryptoassets. The intention is to implement a more expansive, comprehensive regulatory regime, underpinned by the Government’s legislative plans.
The Financial Services and Markets Act 2023 classifies crypto as a regulated financial activity.
In line with the UK’s risk-based approach, certain details – especially concerning exchanges and custodians – may emerge first. It remains to be seen whether this will include specific accommodation for FCA-registered crypto firms to continue providing crypto services. The phased approach to regulation may pose particular complications if different types of crypto activity become subject to authorisation requirements (and therefore to FCA rules) at different times.
The UK’s Financial Conduct Authority (FCA) has announced its roadmap to fully regulate crypto assets by 2026, as it aims to support a “safe, competitive and sustainable” market for cryptocurrencies in the UK. Tech-savvy owners of Bitcoin and other digital assets will benefit from greater legal protection thanks to an important clarification to the law. The move follows a year of acute turbulence in the digital asset industry, which included the collapse of Sam Bankman-Fried’s FTX cryptocurrency empire and lender Celsius, which left individuals globally with billions of dollars in frozen funds.
After setting out its plan in regards to fiat-backed stablecoins in 2022, as part of the next wave of regulation, the Government plans to bring other key actors including exchanges and custodians within the regulatory perimeter. As expected, the UK will draw on (but tailor) existing regulatory frameworks (e.g. MiFID) that apply to traditional financial products and services. The proposals will also strengthen the rules around financial intermediaries and custodians – which have responsibility for facilitating transactions and safely storing customer assets. These steps will help to deliver a robust world-first regime strengthening rules around the lending of cryptoassets, whilst enhancing consumer protection and the operational resilience of firms.
The proposed new rules will cover a wide range of activities, including issuance, exchange, investment, risk management, lending, custody, borrowing, leverage, safeguarding, and administration. However, the recent election and subsequent new Labour Government’s manifesto priorities have caused these proposed developments to be held in the legislative queue. The FCA’s announcement demonstrates that this is now underway, with the regime anticipated to go live in 2026. The crypto industry, meanwhile, has complained of delays and poor feedback from the FCA, while recently introduced rules restricting crypto promotions have led some well-known firms to cut U.K.
The time taken to verify and record a transaction using the DLT varies among cryptoassets. For example, on the Bitcoin network, the average confirmation time for a Bitcoin payment is about 10 minutes. The two main factors that influence transaction time are the volume of network activity and transaction fees.
But since then, the industry worldwide has been buffeted by a series of crises – most recently, the collapse of the FTX exchange, which prosecutors have described as “one of the biggest financial frauds in US history”. “But we must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards,” he added. But it also acknowledges some crypto businesses may simply choose to continue operating in offshore jurisdictions that “do not impose equivalent market-abuse rules”. The sector has had a calamitous year, with assets collapsing in value by an estimated 75% from their peak of about $3 trillion in November 2021. As transactions are time-stamped on the blockchain and mathematically related to the previous ones, they are irreversible and impossible to alter.
This means that, in some cases, cryptoasset transactions will not be as cost effective or as efficient as transactions done through a government issued currency. The FCA is proposing a series of consultation and discussion papers between now and 2026 in order to establish a regulatory framework for crypto assets. It was thought that phase 2 would be introduced in the latter stages of 2024, heralding a wholescale regulation and establishing a more comprehensive set of rules for most cryptoassets, beyond fiat-backed stablecoins. Other crypto areas, such as algorithmic stablecoins, will follow as the government brings activities like lending and trading into the fold of conventional financial regulation, according to an update published Monday.
Only a few cryptoasset activities have needed authorisation under the Financial Services and Markets Act 2000 (FSMA). This applies to cryptoassets that act like traditional investments falling under the definition of ‘specified investments’. Sometimes users will pay more in transaction fees in order to get their transactions processed more quickly.
Last year, the FCA introduced new financial promotion rules around the marketing of cryptoassets in the UK (applicable to all firms regardless of whether they are based overseas or what technology is used to make the promotion). There are strict rules stating that all promotions must be fair, clear and not misleading, with prominent risk warnings. The FCA has been vigilant and clearly busy in enforcing these rules, issuing hundreds of warnings and stopping unauthorised promotions within a month of the restriction.
The UK government is pressing ahead with its plans to bring the cryptocurrency industry under the umbrella of mainstream financial services regulation even after last year’s collapse of several high-profile digital asset companies stung retail investors. Crypto assets have been the subject of increased scrutiny during the last couple of years, with both the Government and the FCA having expressed concerned over ‘the wild west’ of finance. Phase 1 of the current regulation seems to have had little effect (perhaps even a negative effect), with some exchanges moving out of the English promotion markets completely. The sector needs further regulation, and the FCA has just introduced the FCA crypto roadmap for the introduction of phase 2, which is good news. As the UK moves forward to design and implement a phased regulatory regime, the FCA has published a discussion paper DP23/4. This covers the proposed approach to regulating fiat-backed stablecoins, recognising their potential for widespread adoption including to facilitate trading, lending and borrowing of cryptoassets.
The term “crypto asset” itself refers to a wide spectrum of digital products that are privately issued using similar technology (cryptography and often distributed ledgers) and that can be stored and traded using primarily digital wallets and exchanges. The government also on Tuesday said it planned to open up a temporary exemption that would allow crypto companies registered on the anti-money-laundering list to promote their services to the public even while a broader regulatory regime for crypto activity is introduced. Cryptocurrency activity is currently not regulated by the UK’s Financial Conduct Authority; however, digital asset service providers that operate within the country’s borders must go through the watchdog’s anti-money-laundering review process.
Stricter regulations can enhance consumer protection, making the market safer for investors. This can help build trust in the cryptocurrency space, attracting more retail and institutional investors. This sector is heavily targeted by scammers, and the UK is a long way behind other jurisdictions in the use of digital coins.