The UK’s cryptocurrency regulatory landscape is still evolving, but stability appears to be on the horizon. Key changes are expected, driven by important regulatory updates, including those stemming from HM Treasury Consultation recommendations and the Financial Services and Markets Act 2023, which should bring much-needed regulatory changes.
Additionally, the recently proposed Property (Digital Assets) Bill, if enacted, will enable digital assets to be considered as property under UK law. This long-awaited classification of digital assets as property will give owners much greater legal protections in cases of fraud or property disputes.
Overview
Firms looking to launch cryptoassets or related products in the UK need to stay informed about the UK regulatory landscape.
This could include finding out whether Financial Conduct Authority (“FCA”) authorisation is required, the potential consideration of anti-money laundering (“AML”) regulations, data protection regulations, intellectual property issues and the rules relating to consumer advertising.
Current UK regulatory position
To track developments, last year Gherson’s criminal litigation, regulatory and investigations team wrote a blog entitled “UK crypto regulation – what changes does the recent HM Treasury Consultation Paper suggest lie ahead for UK crypto regulation”.
We subsequently wrote a blog entitled “UK crypto regulation – update in light of HM Treasury’s 30 October 2023 Response to their 1 February 2023 Consultation Paper”.
We have also previously written blogs entitled Non-fungible token (NFT) Regulation in the UK and Stablecoin regulation in the UK.
Previous positions
Historically, cryptoassets in the UK have been unregulated except where they cross over into the regulatory perimeter.
However, given the recent charges by the FCA, it has become clear to firms and individuals that anti-money laundering rules apply to certain crypto businesses, potentially including those dealing with such cryptoassets as Non-Fungible Tokens.
In addition, certain types of cryptoassets were regulated, depending on their characteristics.
Therefore, firms looking to launch cryptoassets or related products need to consider the current regulatory landscape, which includes a consideration of FCA regulations, of anti-money laundering regulations and the rules relating to consumer advertising.
HM Treasury Consultations and 30 October 2023 response
The recent HM Treasury Consultation gave a glimpse of the proposed changes to UK crypto regulation.
It is likely that the UK will introduce a broad definition or cryptoassets, that regulation will be established under the current UK framework, the territorial scope will be broader, as will the financial crime regulatory standards, a disclosure regime will be established, and the government proposed bringing a wide range of crypto assets into the regulatory perimeter.
In addition, various activities, such as public offerings, trading venue operations, intermediation and custodian services will be regulated.
The Financial Services and Markets Act 2023
This Act introduces updates to the provision of financial services in the UK following Brexit.
Specifically, it introduces a regulatory framework enabling stablecoins to be incorporated into the current regulations concerning payments in the UK. The Act, therefore, envisages a time when certain stablecoins could be regulated for use as payments.
Specifically, the Act should:
- Give HM Treasury powers to establish a FCA authorisation and supervision regime in relation to stablecoins;
- Enable Payments Service Regulator to regulate payment systems using digital assets;
- Enable HM Treasury to apply the Financial Markets Infrastructure Special Administration Regime (FMI SAR) to stablecoin firms that have been recognised by HM Treasury;
- Amend or dis-apply existing FCA or PRA rules in areas relating to financial stability to avoid conflicting requirements.
The Act should therefore introduce greater regulatory certainty for various cryptoassets.
Proposed changes via Property (digital Assets etc) Bill
More recently, a Bill introduced on 12 September 2024 into parliament should enable digital assets such as Bitcoin to be considered as personal property under UK law.
The long-awaited classification of digital assets as property will give owners much greater legal protections in cases of fraud or property dispute.
Summary
The introduction of the Financial Services and Markets Act 2023 and the potential enactment of the Property (digital assets) Bill should bring much greater certainty to both the regulatory and legal landscapes surrounding cryptoassets.
In the meantime, and especially given that the FCA has demonstrated a willingness to prosecute individuals who do not comply with the regulations, firms should continue to keep a keen eye on developments and the current regulatory position.
How Gherson can assist
Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML, regulatory and sanctions compliance, including in situations involving cryptoassets.
Additionally, the team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector. In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.
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 12 November 2024
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