Original｜Odaily Planet Daily
Author｜Jessica
On October 8, the British financial market regulator FCA (Financial Conduct Authority) updated its warning list and added 143 new entities, including mainstream cryptocurrency trading platforms such as Huobi HTX and KuCoin. The trading platforms are labeled "unauthorized" and the FCA warns consumers that "if you deal with an unauthorized firm, you will not be able to access the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong." Financial Services Compensation Scheme).”
When it comes to regulation, compared to the bipolar situation in which the U.S. Congress supports but the SEC opposes, and the pilot program in which mainland China bans and Hong Kong "goes first", the UK seems to be particularly averse to cryptocurrencies and Web3. Some British lawmakers and regulatory agencies even regard cryptocurrency transactions as behavior similar to gambling, and called for its corresponding regulation.
However, due to pressure from the situation and public opinion, the UK is constantly adjusting its attitude.
After the EU passed the MiCA regulations, the UK hopes to bring cryptocurrencies into the scope of the existing regulatory framework. The UK plans to regulate cryptocurrencies under the Financial Services Market Act and establish an authorization system for digital asset companies. In addition, the UK wants to regulate stablecoins according to the country’s payment rules and set up a market abuse regime to protect investors. The Financial Services and Markets Bill, which would give regulators powers to oversee cryptocurrencies and do so by broadening the rules for financial instruments, has been advanced in parliament.
It sounds like they are actively "following the trend", but the difficulty of implementation is self-evident. The European Financial Markets Association said: "The UK's planned cryptocurrency authorization system may make it difficult for foreign companies to enter, thereby damaging its reputation as an open market." The lobby group CryptoUK called on overseas companies to be exempted from local authorization.
Binance believes: “It is critical that regulators urgently implement a timely and appropriate authorization process to enable complete and accurate applications, taking into account the regulatory history of companies in the authorization process, and strive to avoid repeated information requests from companies .”
As a financial center, the UK’s government’s cautious attitude towards cryptocurrencies may be related to its financial development. As one of the global financial hubs, the UK has rich experience and considerable interests in financial supervision and stability. As a result, governments may focus more on protecting the stability and legal compliance of the financial system.
The decentralization, anonymity and cross-border nature of the cryptocurrency market may bring challenges to the traditional financial system. Out of the need to maintain financial stability and supervision, the government may be more inclined to implement stricter regulatory measures to ensure the safety and compliance of the financial system.
However, it is important to note that governments’ attitudes and stances on cryptocurrencies are dynamic and may be affected by factors such as technological developments, international trends and public pressure. The government is also aware of the potential of blockchain technology and may actively explore how to balance financial innovation and supervision.
UK Crypto regulatory changes
In recent years, there have been some important changes to the regulations and policies governing the cryptocurrency market in the UK.
In January 2018, the Financial Conduct Authority (FCA) announced that it would regulate cryptocurrency exchanges and ICOs. The FCA stressed that these organizations need to comply with anti-money laundering and counter-terrorism financing regulations and ensure market transparency and investor protection;
In March 2018, the Ministry of Finance released a report on cryptocurrency taxation. The report notes that the tax treatment of cryptocurrencies is similar to that of traditional assets. This means that cryptocurrency transactions may be subject to capital gains or other taxes;
In January 2019, the FCA published a document explaining in detail its regulatory approach and principles for cryptocurrencies. The document reiterates the importance of anti-money laundering and counter-terrorism financing regulations and provides specific regulatory rules for cryptocurrency exchanges, ICOs and cryptocurrency funds;
In January 2020, the FCA announced that it would delay the implementation of new anti-money laundering rules to give cryptocurrency exchanges more time to meet the new regulations. These rules include KYC (know your customer) and AML (anti-money laundering) requirements;
In August 2020, the UK government released a consultation paper on cryptocurrencies to gather public and stakeholder input. The document proposes some potential regulatory measures and policies, including the supervision of stablecoins and DeFi (decentralized finance);
In January 2021, the FCA announced that all cryptocurrency businesses will need to register and be regulated. The move aims to further strengthen regulation of the cryptocurrency market to ensure market stability and investor protection;
In April 2022, the British government released a landmark vision to build the UK into a global center for cryptocurrency investment and committed to creating conditions suitable for the development and expansion of cryptocurrency and digital asset businesses;
In response to growing concern from members of Parliament and the media about the regulation of the UK cryptocurrency and digital asset industry, the All-Party Parliamentary Group on Cryptocurrency and Digital Assets (APPG) launched its first survey in August 2022 to understand current challenges and opportunities for growth . The investigation focuses on the UK’s approach to cryptocurrency regulation, the role and current approach of UK regulators including the Bank of England, the FCA and the Advertising Standards Authority (ASA), the potential offered by a central bank digital currency (i.e. the “digital pound”), and the risks to consumer protection and economic crime;
In July 2023, the FCA released a proposed guidance on social media financial promotion, which targets Meme promotion and KOL. The FCA said it found memes related to cryptocurrency companies circulating online, with many people unaware they were subject to its promotion rules. Memes are especially prevalent in the cryptocurrency space, and any type of communication can be considered financial promotion. Under a proposal from the FCA, those caught with memes that do not comply with financial promotion rules could face up to two years in prison;
In August 2023, the FCA issued an announcement stating that starting from September 1, crypto asset businesses in the UK will be required to collect, verify and share information about crypto asset transfers, which is called the "Travel Rule";
From October 8, companies operating in the UK will only have four legal ways to promote crypto assets in order to comply with the FCA’s regime. These legal avenues include having the promotion approved or communicated by an authorized party, the promotion being created by a business registered with the FCA, or the promotion qualifying for an exemption under the UK Financial Services and Markets Act. According to the FCA, promotional activities include "websites, mobile apps, social media posts and online advertising" that are "capable of having an impact in the UK" and are not limited to UK-based companies;
British banking giant Chase will ban cryptocurrency-related payments for UK customers from October 16. Chase said it banned crypto payments because "fraudsters are increasingly using crypto assets to steal large sums of money from people."
It can be seen that in recent years, the British government and regulatory agencies have been working hard to improve supervision of the cryptocurrency market. Due to the rapid changes in the cryptocurrency market, regulatory policies are constantly adjusted and updated.
Should crypto companies stay or go?
The FCA disclosed on its official website that since 2020, a total of 291 registration applications have been received, and only 38 have been approved. Currently, the FCA has registered 42 entities including Bitstamp, Revolut and Gemini.
Since the announcement/implementation of new regulations in the UK in October, exchanges such as Binance, Coinbase, Bybit, OKX, Luno and others have successively announced new “actions”:
In the past year or two, CZ has traveled around the world in order to conduct business in compliance with regulations. After the implementation of the new British regulations, Binance launched a new domain name for British users and cooperated with Rebuildingsociety.com Co., Ltd., which will approve Binance’s marketing and communication materials. Rebuildingsociety.com is an FCA regulated company with the authority to approve cryptocurrency marketing and communication materials as an “S 21 Approver”. This partnership and new domain name means Binance can offer products and services in the UK while complying with updated financial promotion rules.
Coinbase and OKX have partnered with cryptocurrency startup Archax to gain approval for financial promotions;
There are also exchanges that are forced to abandon the British market due to compliance: Bybit announced that it will suspend its business in the UK in October, and will not be able to open accounts from October 1st; from October 8th, existing users will not be allowed to add funds or create new contracts Or increase positions; and Luno exchange will ban some British customers from investing in cryptocurrencies from October 6.
Strict regulation in the United States has caused many crypto companies to "flee" the United States. Many countries and regions are actively taking over "this cake". In addition to financial innovation, they also hope to bring opportunities to the country in terms of taxation and employment. However, the high volatility of cryptocurrency Sex, anonymity and speculation have always made the UK "cautious". How exchanges conduct business has become a top priority. Perhaps you can try the following paths:
Like Binance, Coinbase, etc., we cooperate with local companies regulated by the FCA to conduct business;
To save the country, as soon as the EU MiCA regulations are released, as long as they are approved, you can conduct business in 27 EU countries (refer to Ripple/Kraken);
Consider other friendly countries such as:
The UAE has relatively loose regulatory policies on cryptocurrency exchanges. The Dubai Financial Services Authority (DFSA), as the main regulator, registers and regulates cryptocurrency exchanges and requires exchanges to comply with anti-money laundering (AML) and know-your-customer (KYC) regulations;
Hong Kong, China, is an important financial center with relatively strict regulations on cryptocurrency exchanges. According to the guidelines of the Hong Kong Securities and Futures Commission (SFC), companies operating cryptocurrency exchanges may need to apply for and obtain a virtual asset exchange license and comply with relevant regulations and regulatory requirements. HashKey is approved to operate in Hong Kong, China; Malta is considered an important center for cryptocurrency and blockchain technology in Europe and implements friendly regulatory policies for exchanges;
The Malta Financial Services Authority (MFSA) regulates cryptocurrency exchanges and provides a regulatory framework under the Virtual Financial Assets Act to ensure exchange compliance and investor protection;
Estonia is one of the early adopters of cryptocurrency and blockchain technology. The country has provided a relatively friendly regulatory environment for cryptocurrency exchanges by introducing a virtual currency exchange licensing system and an innovative technology enterprise registration framework;
Switzerland has a reputation as a strong financial center and is open to cryptocurrency exchanges. The Swiss Financial Market Authority (FINMA) has provided cryptocurrency exchanges with a clear set of regulatory guidelines to guide compliance operations;
Singapore is an important financial center and has a supportive attitude towards cryptocurrency exchanges and blockchain technology. The country has established a regulatory framework for cryptocurrency exchanges and junior token offerings to ensure compliance and investor protection;
Costa Rica is considered one of Latin America’s cryptocurrency hubs. The country has no specific regulations restricting the operations of cryptocurrency exchanges, which has attracted some exchanges to set up locally. (BitMEX and Binance have local offices)
Regarding the issue of government supervision, on the one hand, the cryptocurrency market is "still very small compared to the entire financial system." It has always been difficult to legislate new things in history. After all, if you take a big step, you are afraid of getting hurt. On the other hand, its market is highly volatile, which will damage the integrity of the financial market and may also provide a breeding ground for criminal activities such as money laundering, tax avoidance, terrorist financing, and avoidance of international sanctions. As for how to go and which step to take, only time will give the answer.
