With multiple factors trying to rock the boat of the economy, myriads of questions are being asked concerning the future of cryptocurrency and future vector of the regulation of financial activity in the UK. The FTX collapse which happened last November seriously shook cryptocurrency positions, but despite this news, the UK government intends to transform the UK into a world crypto centre. With such intentions in mind, it is important for businesses to understand the vector of regulation of crypto activity in the UK.
One of the serious changes introduced in the regulation of financial activity in the UK is related to the legislation that has been put before Parliament known as the FSMA (Financial Services and Markets Act). According to some stereotypes, the UK is considered a very conservative country, but when it comes to financial technologies, the UK government is successfully moving with the times, which includes the regulation of the crypto-asset market.
First amendments in connection with the Financial Services and Markets Act
It is worth noting that the original version of the famous FSMA not only included Stablecoins, but also provided that this asset could be used as a valid means of payment. So, as Stablecoin is crowned as a real thing in turnover, it should be regulated by the FCA (The Financial Conduct Authority) and the Central Bank of England, which is in charge of regulating cryptocurrency activities, among other things.
The British legislator has chosen a far-sighted formulation in FSMA. It takes into account the fact that technologies are developing extremely rapidly and, in order to avoid blind spots in the near future, HMT has the power to amend the definition of "digital means of payment", even if it is currently clearly defined.
Future changes to UK cryptocurrency market regulation
Serious changes could be coming in November to more than just the text of the Financial Services and Markets Act 2000 could be on the cards in November. If the changes are approved and incorporated into the version currently in force, the FCA would be able to apply more powers to control virtual assets and do so at a deeper level. Currently, the FCA's powers are more preventative in nature and focus on AML procedures. It controls that both cryptocurrency companies and crypto start-ups apply and actually use efficient financial monitoring tools as an integral part of their internal AML policies and procedures. Under the proposed amendments, virtual assets will be regulated as strictly as traditional securities (shares, etc.).
What are the implications for UK crypto companies?
It would change the rules of the game for other players in the financial market and crypto companies in the UK as part of their compliance obligations and companies offering services related to crypto operations and assets in crypto will need to obtain FCA approval.
In other words, legal business activity in the UK related to investment advice and registration of crypto companies would be impossible without FCA approval.
There would be two different procedures. New firms would have to seek approval for registration, while existing firms covered by the special regime FCA AML and running business in the UK would have to go through a different route to obtain their registration documents in line with the new regulatory requirements. This process is complicated by the fact that, in addition to AML and FCA standards, it is likely that Financial Ombudsman Services rules in the area of complaints will also need to be complied with.
Further information on the regulation of financial services in the post-BREXIT period can be obtained by consulting with our experts.
The FCA would be empowered to interfere with the advertising of the UK crypto companies. The FCA has the power under the Section No 21 amendments to restrict not only ADS, but also the sale of services offered in the UK market. Non-regulated firms are not allowed to advertise or promote investment activities.
A lever for compliance is the fact that any company found to be in breach of the new FCA rules will face the consequences in the form of penalties and/or other types of sanctions if that company is found to have breached the rules and carried out intentionally deceptive actions in the UK market.
Consequences of the novelties to the Financial Services Regulations for customers
In short, the aim is to provide better protection of customers associated with crypto-asset services and also for new entrants to the industry. The FSMA is seen as a cornerstone of the UK's transformation into a crypto hub. On the one hand, the changes offered to this law can provide customers with a solid foundation, knowing that their rights can be protected, and on the other hand, such steps could stimulate more investment in this promising segment. According to the statistics, almost 3 million UK customers have already invested into crypto assets.
Higher transparency and security would help balance the labour market, as it is expected that the crypto sector would enable the creation of more jobs and solve the unemployment problem, as well as increase the level of living and the inflow of taxes in 2023. Currently, this bill is still under consideration, but serious intentions are confirmed by the fact that it successfully passed the second reading in the Upper House.
The UK is taking practical steps to modernise its economy by becoming the world's crypto hub. This is reflected in the changes to registration procedures and the expansion of the FCA's powers over crypto market participants. Our company's experts keep a constant eye on the latest changes in the regulation of the UK market of financial services and provide our clients with professional advice of a high standard.