The FCA’s vision for crypto regulation: a closer look at the proposed Financial Crime Guide updates

The bill also enables law enforcement agencies to investigate, seize and recover the proceeds of crime Cryptocurrency within the crypto asset ecosystem more effectively. NFTs are a type of crypto assets that represent unique and indivisible digital assets, such as art, music, games, collectibles or identity. NFTs use DLT to verify the ownership, provenance and authenticity of the digital assets, and to enable their creation, transfer and monetisation. NFTs have emerged as a new and exciting phenomenon in the market, as they enable the digitalisation and democratisation of the creative economy, and create new opportunities and challenges for artists, creators and consumers. According to a report, the total sales volume of NFTs reached $10.7 billion in the third quarter of 2021, up from $1.3 billion in the second quarter of 2021. Some of the popular platforms and projects for NFTs include OpenSea, CryptoPunks, Axie Infinity and NBA Top Shot.

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FCA has so far registered fewer than 50 firms, and issued warnings about many more firms that it believes should be registered but are not. In this blog, we don’t address NFTs or CBDCs as the policy landscape is still developing. https://www.xcritical.com/ Mountford Chambers delivers a nationwide and international service to clients, who are assured quality advice, advocacy and representation at all levels.

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In this way, with Sanction Scanner, crypto businesses can comply with regulations and be protected from regulatory penalties. The UK financial services sector awaits further detail on how the new Labour government is proposing to implement its manifesto and the extent to which their plans may drive change in the sector. New listing rules from UK regulator the Financial Conduct Authority (FCA) provide a cryptocurrency regulations uk much-needed boost to the UK capital markets, reducing the regulatory burden on listed companies with a new permissive disclosure-based approach, an expert has said.

Crypto Update: UK Government Outlines Its Approach to Digital Asset Regulation

An invitation or inducement to engage in investment activity is referred to as financial promotion. In addition to providing the means to the issuer to pursue initial development, offset development costs and fund future projects, an ICO allows a large pool of interested parties to buy (and subsequently trade) the new cryptocurrency. Creation of a diversified and sufficiently large pool of cryptocurrency holders is key to creating an interest and market for the newly launched cryptocurrency. This is where proceeds of pre-ICO fundraising will be used to pay for the final development steps and for it to operate successfully on a cryptocurrency exchange. The UK is taking a more organic approach, addressing specific policy areas of concern and focussing on areas that can be practically regulated within jurisdictional boundaries.

• To those subject to the FCA’s regulation of other investment products, the new rules will seem familiar, ostensibly bringing the requirements for promotion of qualifying cryptoassets in line with other high-risk investments.
• The findings of this study reveal divergences in the regulatory approaches of the UK and Germany towards crypto-assets.
• CBDCs are a digital form of sovereign currency, issued by and treated as a liability of a central bank.
• Since 2017, the FSS has had a prohibition in place on the launch of Bitcoin spot ETFs, and the latest policy announcement reflects a broader scepticism at the FSS about the suitability of ETF products linked to the cryptoasset industry.
• Currently an executive and founder at Key Square Capital Management, Bessent is an outspoken advocate of cryptoassets and a believer in the role they can play in fostering financial innovation.
• An invitation or inducement to engage in investment activity is referred to as financial promotion.

Key proposals from the FCA include:

Germany has adopted an absolutely proactive approach in regulating cryptocurrencies and passed law in 2020 that mandates all cryptocurrency exchanges taking place in Germany acquire a license from the Federal Financial Supervisory Authority (BaFin) (Armata 2023). On the other hand, the UK government has no plans to design a special set of regulations for crypto-assets. Rather, it stated that it would regulate some crypto-assets by classifying them as “specified investments”, which are already regulated assets according to current regulations (Ross and Cavill 2023).

On 1 February 2023, HM Treasury launched a consultation paper with the aim of ultimately setting regulation going forwards. Crypto platforms can grow confidently with identity verification systems that can rapidly onboard customers while achieving regulatory compliance. You can read the MiCA regulation and interpret it, but to be able to really grasp it, you would also need knowledge of other regimes. A proactive, welcoming webpage or agency communication vehicle where companies can ask questions directly of the regulators would be a good start and show the UK’s commitment to bringing in technological advancements. Overlapping actions and guidelines suggested by varying experts can create an ecosystem minimising risk through the strength of different approaches. Our flagship Central Bank Digital Currency (CBDC) Tracker takes you inside the rapid evolution of money all over the world.

Looking at the recent regulatory actions, it is more likely these future programs will sit in public policy or law schools instead of economic departments or business schools. These guidelines come alongside ones from the FCA already applying from 1 September for UK virtual asset services providers to possibly withhold transfers to and from jurisdictions not following the UN’s FATF Travel Rule. Stablecoins, which are usually backed by a fiat currency, are the next frontier of cryptocurrency regulation. With the implementation of the Markets in Crypto-Assets Regulation (MiCA) in the EU, half of the G7 countries have stablecoin regulations in place.

The Commission believes that enabling full access to the internal market and providing legal certainty will promote innovation, provide consumers and investors with appropriate protection levels, and ensure financial stability and market integrity. Under 5AMLD, crypto exchanges and crypto wallet providers are considered “obliged entities” and face similar requirements as financial institutions. These requirements include Anti-Money Laundering (AML), Customer Due Diligence, transaction monitoring and suspicious activity reports. Yet, with an eye on continued consumer protection, the Financial Conduct Authority (FCA) in September 2023 shared a warning that cryptoasset firms market their services appropriately with the new rules coming into effect this year. Navigating the UK’s cryptocurrency market goes beyond simply understanding the ever-changing regulatory and ethical frameworks.

Leveraged investors (including hedge funds) dominate trading in Bitcoin futures on the Chicago Mercantile Exchange [3]. Banks are also building out their crypto offerings – in particular custody and trading services. CBDCs are a digital form of sovereign currency, issued by and treated as a liability of a central bank. There is no widely agreed regulatory definition of a cryptoasset, and definitions vary across regulators. Digital assets are a digital representation of value or rights which can be created, transferred and stored electronically.

Market participants can move across jurisdictions quickly, limiting what policymakers can do to oversee the market. For example, despite an FCA ban, some UK retail customers have still been able to purchase cryptoasset derivatives abroad, or through means outside the FCA’s control [8]. In this blog, we take stock of the key types of cryptoassets that have captured EU and UK policymakers’ attention. This pace of growth has not escaped the attention of EU and UK policymakers, and their focus has turned to updating the regulatory framework, and clarifying expectations of firms, to ensure that market integrity, financial stability and consumer protection are maintained. This could include whether Financial Conduct Authority (“FCA”) authorisation is required and a potential consideration of anti-money laundering (“AML”) regulations, data protection regulations, intellectual property issues and the rules relating to consumer advertising.

The country has been working on several aspects when it comes to regulation, including taxation. In September 2022, the government announced it would introduce remittance rules as early as May 2023 to prevent criminals from using cryptocurrency exchanges to launder money. The Act on Prevention of Transfer of Criminal Proceeds has been revised to allow for the collection of customer information.

Consumers of cryptoasset services may wish to investigate whether the relevant persons, including cryptoasset exchange providers and custodian wallet providers, are compliant with the new legislation. This is of particular importance in the cryptoasset space as non-compliance, and the related possibility of penalties and negative market sentiment, may significantly affect the value of customers’ assets. On 26 November 2024, shortly after Secretary Siddiq’s speech was made public, the FCApublished a “Crypto Roadmap” of key dates for the development and introductionof the UK’s cryptoasset regime.

The sandbox provides a safe space for businesses to experiment and refine their offerings while closely engaging with regulators to address potential risks and compliance challenges (FCA 2022). In addition, regulatory frameworks play a role in promoting innovation and responsible growth within the crypto-asset industry. Clear guidelines can provide entrepreneurs, start-ups and established companies with a conducive environment for creating innovative applications and services. A balanced approach to regulation can foster a competitive marketplace while safeguarding against excessive risk-taking and speculative behaviour. The most important factor in buying and selling crypto assets is to ensure that cryptocurrencies are not used to finance terrorism or money laundering.

The voluntary requirement prevented CBPL from taking on new high-risk customers until such time as CBPL satisfactorily addressed issues with its framework. Primarily, this will cover and be used to regulate stablecoins which reference their value in relation to fiat currencies (see our alert here). Crypto firms will welcome the clarity on the UK crypto and stablecoin regime —particularly the acknowledgement that UK-centric issues around staking will beaddressed.

The roadmap sets out a series of consultationsfocused on different aspects of the future regulatory regime to be held overthe course of 2025 and during the first quarter of 2026, with the final rulespublished in 2026. In particular, the European Union has led the way with its Markets in Cryptoassets (MiCA) regulatory framework, which will be fully live from the end of this year, and which many in the industry see as offering a robust but ultimately clear pathway for crypto firms. In the US, the recent sweep of all branches of government by the Republican party has crypto industry watchers largely upbeat that the US will take on a pro-crypto policy stance. For example, there are concerns that stablecoins backed with risky assets may not support all redemptions – making them unsuitable for systemic payments use.