The UK is attempting to position itself as a reliable place for cryptoasset entities to do business. It wants to use its position as a Financial Services centre to encourage firms in the sector to base their operations here. It is doing this as it can see the potential benefits to consumers of utilising crypto to improve the overall payments system. Ultimately though the priority is to protect consumers from potential harm.
But what has it actually done and what sort of timelines are we looking at.
10th January 2020
The FCA became the Anti Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for firms carrying on certain cryptoasset activity.
6th November 2023
The FCA issued DP23/4: Regulating cryptoassets (phase 1) and the BoE issued a Cross-authority roadmap on innovation in payments. These set out how stable-coins will be regulated and the requirements on firms issuing or holding them.
19th June 2023
FSMA 2023 came into force giving BoE and PSR power over Digital Settlement Assets (DSAs), for example stable-coins. This also paves the way for the regulation of wider cryptoassets.
24th November 2024
The government confirmed it will proceed with legislation to bring crypto assets into FCAs perimeter. One major change: DP23/4 formerly noted as ‘phase 1’ covering only stable coins will now cover the ‘phase 2’ elements of authorising trading exchange and other activities too.
8th October 2023
The Cryptoasset financial promotions regime (as set out in FG23/3) came into force. This applies to all firms marketing cryptoassets to UK consumers, regardless of whether the firm is based overseas or what technology is used to make the promotion.
16th December 2024
The FCA issued DP24/4 Regulating cryptoassets: Admissions & Disclosures and Market Abuse Regime for Cryptoassets. Includes detail on what will be required to commence trading on platforms (e.g. Coinbase).
So a busy last 18 months or so! The FCA has its FCA Crypto Roadmap setting out its plans with 2025 and 2026 bringing a further a ramp up in activity.
Upcoming crypto regulation plans: what businesses need to know
We should shortly be seeing the final discussion paper setting out plans for trading platforms, intermediation, lending, staking and prudential considerations and the consultation papers for all areas will follow over the subsequent 12 months.
The point is, what has been a long time in the making is very close to being reality and businesses operating in this space need to start planning for their obligations under these rules. Some key areas will be:
- Ensuring the right advisors are in place
- Making applications for permissions
- Considering systems and controls
There are still a lot of questions to be answered, not least we’d like to know if authorised cryptoasset firms will be ineligible for small company exemptions from full FRS 102 and statutory audit. (Our suspicions are that both will be required no matter a firm’s size.)
The size of the market is also not really known, if many thousands of businesses set up in the UK will there be sufficient professional services capacity to deliver the required reports?
- CASS compliance consultants will need to expand their offerings to cover UK crypto regulations and assist with applications, systems and controls.
- The discussion papers indicate that crypto regulations will be along the lines of what CASS is to investment firms, this would include using an auditor who is eligible for appointment as a statutory auditor under Part 42 of CA2006.
Opportunities for industry growth and legitimisation
We know that existing firms, such as coinbase, and new entrants into the market will be looking to capitalise on the opportunity this presents. If the UK can get this right it will be a very welcome legitimisation of the crypto world and maybe, just maybe, we can start to see the promised benefits of cryptoassets.
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