UK crypto regulation: What is the current state of UK crypto regulation?

Introduction

The UK crypto regulatory landscape remains in a state of flux, but significant changes on the horizon promise to bring much-needed stability and clarity. This article examines the current state of UK crypto regulation, focusing on recent developments, such as the Financial Services and Markets Act 2023 and the proposed Property (Digital Assets) Bill. These changes are poised to reshape the way cryptoassets are regulated and recognised under UK law.

Overview

Firms looking to launch cryptoassets or products connected to cryptoassets in the UK must continuously monitor the evolving regulatory environment. Key considerations include:

• Financial Conduct Authority (FCA) authorisation: Determining whether FCA authorisation is required for specific crypto-related activities.
• Anti-Money Laundering (AML) regulations: Ensuring compliance with AML obligations to prevent illicit activities.
• Data protection regulations: Safeguarding personal and sensitive data in accordance with UK laws.
• Intellectual property issues: Protecting proprietary technology and respecting third-party rights.
• Consumer advertising rules: Adhering to regulations governing the promotion of financial products and services.

Current UK regulatory position

Previous position

Historically, cryptoassets in the UK have been largely unregulated unless they crossed into the existing regulatory perimeter. However, recent enforcement actions by the FCA highlight that AML rules apply to certain crypto businesses, potentially including those dealing with cryptoassets such as Non-Fungible Tokens (NFTs).

Firms launching cryptoassets or related products needed to consider various regulations, including:

• FCA Regulations: For cryptoassets classified as specified investments.
• AML Regulations: Under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.
• Consumer Advertising Rules: As per the Advertising Standards Authority (ASA) and FCA guidelines.

HM Treasury consultations and October 2023 response

In February 2023, HM Treasury released a Consultation Paper outlining proposed changes to UK crypto regulation. The government’s response on 30 October 2023 indicated several key developments:

• Broad definition of cryptoassets: Introducing a comprehensive definition to encompass a wide range of digital assets.
• Regulation under existing frameworks: Leveraging current financial regulatory structures to oversee cryptoassets.
• Expanded territorial scope: Applying regulations more broadly, including activities conducted outside the UK that have an effect within the country.
• Enhanced financial crime standards: Strengthening AML and counter-terrorist financing measures.
• Disclosure regime: Establishing requirements for transparent information disclosure to consumers and investors.
• Regulatory perimeter expansion: Bringing a wider array of cryptoassets and related activities into the scope of regulation.
• Regulated activities: Including public offerings, operating trading venues, intermediation services and custody providers.

For detailed analyses, please refer to our previous blogs:

• UK Crypto Regulation – What Changes Does the Recent HM Treasury Consultation Paper Suggest Lie Ahead for UK Crypto Regulation
• UK Crypto Regulation – Update in Light of HM Treasury’s 30 October 2023 Response to Their 1 February 2023 Consultation Paper
• Non-Fungible Token (NFT) Regulation in the UK
• Stablecoin Regulation in the UK

The Financial Services and Markets Act 2023

The Financial Services and Markets Act 2023 introduces significant updates to the UK’s financial The Financial Services and Markets Act 2023 introduces significant updates to the UK’s financial services regulation post-Brexit. Pertinent changes affecting crypto regulation include:

• Incorporation of stablecoins:
  • Empowering HM Treasury to establish an FCA authorisation and supervision regime for stablecoins.
  • Allowing the Payment Systems Regulator to oversee payment systems utilising digital assets.
  • Enabling HM Treasury to apply the Financial Markets Infrastructure Special Administration Regime (FMI SAR) to recognised stablecoin firms.
  • Permitting amendments or disapplication of existing FCA or Prudential Regulation Authority (PRA) rules to prevent conflicting requirements.

These provisions anticipate a future where certain stablecoins are regulated for use as payment methods, introducing greater certainty for cryptoassets in the payments sector.

Proposed changes via the Property (Digital Assets) Bill

On 12 September 2024, the Property (Digital Assets) Bill was introduced in Parliament. If enacted, this legislation will:

• Recognise digital assets as personal property: classifying assets like Bitcoin as personal property under UK law.
• Enhanced legal protections: Providing owners with greater legal recourse in cases of fraud, theft or property disputes involving digital assets.

This long-awaited classification aims to modernise UK property law to reflect the realities of digital ownership.

Summary

The impending regulatory changes herald a new era for crypto regulation in the UK. The Financial Services and Markets Act 2023 and the proposed Property (Digital Assets) Bill are set to provide much-needed clarity and stability to the regulatory and legal landscapes surrounding cryptoassets.

In the interim, firms must remain vigilant. The FCA has demonstrated a willingness to enforce compliance rigorously, and the evolving regulations require careful navigation to ensure adherence.

How Gherson can assist

Gherson’s White-Collar Crime and Regulatory team possesses extensive experience in advising on UK crypto regulation. Our services include:

• Regulatory compliance advice: Assisting with FCA authorisation processes and ensuring compliance with AML regulations.
• Legal guidance: Offering counsel on data protection, intellectual property rights and consumer advertising compliance.
• Risk management: Helping firms assess and mitigate legal and regulatory risks associated with cryptoassets.
• Staying informed: Providing updates on legislative changes and regulatory developments impacting the crypto sector.

Contact us

If you would like to discuss any issues raised in this article or need advice regarding your specific circumstances, please do not hesitate to contact us. You can also reach out via email or follow us on X, Facebook or LinkedIn to stay updated.

Updated 20 November 2024

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The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2024

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