Financial Crime World

UK Regulators Press Ahead with Cryptocurrency Regulation Despite Market Volatility

Despite a recent resurgence in confidence in the cryptocurrency market, UK regulators are taking a cautious approach to regulate the sector, focusing on protecting consumers and tackling financial crime.

Key Measures Implemented by the Financial Conduct Authority (FCA)

  • Imposed money laundering regulations on cryptoasset exchange and custodian wallet providers
  • Banned the sale of cryptoassets-backed Exchange Traded Notes (cETNs) and crypto derivatives to retail consumers
  • Extended financial promotion restrictions to most cryptoassets

Challenges in Regulating Cryptocurrencies

  • The cryptocurrency market is still prone to sudden and significant losses, firm failure, deficiencies in governance and risk management, financial crime, co-mingling of client and own funds, and propensity for cyber-attacks
  • Regulators must strike the right balance between consumer protection and promoting responsible innovation and competition

Current State of Regulation in the UK

  • Cryptoassets are largely unregulated in the UK, with only a few activities requiring authorisation under the Financial Services and Markets Act 2000 (FSMA)
  • The FCA has introduced new financial promotion rules for marketing cryptoassets in the UK, which apply to all firms regardless of whether they are based overseas or what technology is used to make the promotion

Proposed Approach to Regulating Fiat-Backed Stablecoins

  • The FCA has published a discussion paper on regulating fiat-backed stablecoins, which aim to maintain a steady value by being connected to fiat currency
  • The regulator is seeking feedback from stakeholders on its proposed approach

Future Plans for Crypto Regulation in the UK

  • Introduction of a bespoke market abuse regime for cryptoassets as part of the FCA’s 2024/25 business plan
  • Revamped guidance on financial promotions on social media, including attempts to tighten up on the role of so-called ‘finfluencers’

Comparison with EU’s Markets in Cryptoassets Regulation (MiCAR)

  • The UK’s approach is more gradual, initially focusing on stablecoins, while MiCAR aims to comprehensively regulate the crypto industry across the EU from the start

Action Required for Financial Services Firms

  • Closely monitor developments and take appropriate steps to prepare for the emerging regulatory landscape