By Tim Ryan & Ellen McWhirter
|Published 21 February 2024
At present, crypto firms are subject to limited UK financial services regulation, such as anti-money laundering requirements. Few cryptoasset activities fall under the authorisation requirements of the Financial Services and Markets Act 2000 (FSMA). However, within the past year the government and regulators have begun to move quickly to address this regulatory gap.
In February 2023, HM Treasury launched a consultation and call for evidence on the future financial services regulatory regime for cryptoassets. These plans centred around important cryptoasset activities such as trading, exchange activities, custody and lending activities, which the government intends to bring within the regulatory framework for financial services. We analyse the consultation in more detail here.
The FCA published a Policy Statement in June 2023, mandating that crypto firms only market cryptoassets to consumers with the appropriate knowledge and experience to invest. Moreover, crypto firms wishing to promote cryptoassets in the UK to retail consumers must be authorised or registered by the FCA, or have their marketing approved by an authorised firm. These rules came into force on 8 October 2023. We discussed them in more detail in June last year, here. The FCA also published guidance in November 2023 to assist crypto firms with their compliance.
In October 2023, HM Treasury went on to publish the response to its February 2023 consultation. Much of the new regulatory regime set out in this response reflects the consultation's plans. The response contains clear policy proposals to bring cryptoassets within existing financial regulation. It also introduces a new authorisation process and disclosure and liability regime.
Speaking at an industry event two days ago (on 19 February 2024), the Economic Secretary to the Treasury, Bim Afolami, announced that the government is "pushing very hard" to pass legislation on cryptoassets, with a focus on fiat-backed stablecoins and crypto staking services. Afolami went on to state that this is "doable" over the next six months.
Fiat-backed stablecoins are cryptoassets which 'peg' their value by reference to traditional currencies like the dollar or the pound. Industry experts predict that these, and their issuers, will be regulated under existing payment laws. Staking, meanwhile, involves investors locking-up their cryptoassets for a set period of time to support the operation of a blockchain in return for a yield. It is anticipated that these will receive a new classification that avoids them being considered to be a collective investment.
Afolami was asked to comment on timescales for broader cryptoasset regulation, however he declined to give any specifics and refused to commit to any such legislation being passed this year.
A previous lack of regulatory progress and clear rules has resulted in operational challenges for digital asset businesses in the UK market. However, with a general election looming, it is evident that pressure is on the government to provide further clarity and specific legislative proposals around the regulation of cryptoassets. Given how fast-moving advancements in the cryptoasset space are - and with regulatory and legislative proposals starting to progress at a similar pace - digital asset businesses need to stay up-to-date with emerging developments.
DAC Beachcroft’s Technology and Financial services lawyers advise some of the world’s leading businesses and our team has a breadth of expertise in cryptoassets, DLT/blockchain and web3.
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