The United Kingdom’s Cryptocurrency Landscape Undergoes Regulatory Changes
The cryptocurrency industry in the United Kingdom is experiencing significant transformations as it aligns with the Financial Services and Markets Act. This shift in regulatory approach aims to apply rigorous standards, similar to those in traditional financial services, to firms operating with cryptocurrencies and stablecoins.
Leading cryptocurrency exchanges such as Coinbase, Crypto.com, and Gemini have already implemented measures in response to these new regulations. They have introduced risk assessments and finance tests for users in the UK, including a declaration about their investor profile and a related questionnaire. These steps are crucial to comply with the requirements that demand crypto companies to inform users about the risks associated with trading cryptocurrencies and promote their services responsibly. Failure to complete these measures will result in users being unable to trade with their crypto accounts.
The UK Government has established a broader framework for these regulatory changes, aiming to balance innovation with financial stability and clear regulatory standards. New specific regulated activities for cryptoassets will be introduced, similar to those in traditional financial markets. As a result, crypto native firms, whose primary business revolves around cryptoassets, will require full authorization and supervision by the Financial Conduct Authority (FCA). Traditional finance firms will also have the opportunity to expand their permissions to include cryptoasset activities.
These regulations not only impact firms operating within the UK but also extend their reach to offshore firms that provide services to UK clients. These offshore firms will need authorization in the UK, with exceptions like ‘reverse solicitation’ being considered. This new regulatory environment covers various activities, including trading, custody, and lending, each with specific requirements. For example, trading venues must offer fair access rules, transparent fee schedules, and effective conflict of interest management. Cryptoasset intermediation will be regulated similar to the rules for investment firms, emphasizing consumer protection and market abuse detection.
The HM Treasury is also exploring the regulation of decentralized finance (DeFi) and aims to understand how regulatory outcomes achieved in traditional finance can be applied to DeFi. This includes considering cryptoasset investment advice and portfolio management, and how these services align with current regulatory practices.
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