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Crypto’s Future in the UK: FCA’s Powerful Plan for Regulation

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  • UK’s FCA releases a discussion paper on future crypto regulation.
  • The government will no longer pursue a phased approach to crypto legislation.
  • Focus on developing balanced market abuse and admissions regimes.

The UK’s Financial Conduct Authority (FCA) has unveiled a discussion paper outlining its strategy for regulating crypto and crypto asset public offerings (ICOs). While not yet a law, this paper sets a roadmap for the future regulatory landscape.

The Government’s Legislative Move

The UK government is taking significant steps toward establishing a regulatory framework for digital assets. After announcing plans in 2023, the government confirmed in November 2024 that it would move forward with legislation to bring digital assets under the FCA’s regulatory perimeter.

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A key departure from the old regime is that for the first time, the government will not handle regulation of stablecoins as separate from crypto trading; the two will come under the same law. It reflects a growing prominence of digital assets and its related sectors within the wider financial system.

Broader Crypto Asset Definitions and Regulatory Expansion

In 2023, the law expanded the definition of digital assets to encompass various digital assets that can be transferred, stored, or traded electronically. This includes stablecoins like Tether and Bitcoin, among others. However, security tokens, which are already regulated, fall outside this scope.

The FCA is preparing for a broader mandate than just monitoring anti-money laundering activities. Its new scope will also involve supervision over digital currency trading, regulation of stablecoins, custody, and intermediary services.

The FCA is focusing to establish the crypto market on two main regimes that it has laid down. This includes establishing the regime of Market Abuse and that of Crypto Asset Disclosures A&D regimes.

These will help ensure that the market is fair and transparent while allowing growth. The FCA desires to build a regulatory regime that takes risks seriously with due seriousness, without strangling innovation.

International Collaboration and Future Steps

Besides domestic consultation, the FCA is already working on the international side. It had been leading in developing a global regulation, including at the IOSCO Crypto and Digital Assets Recommendations. Being part of the FSB, the FCA will continue to work on securing global standards for crypto regulation.

This discussion paper invites feedback from those with involvement in the digital asset industry, both domestic and international. The FCA considers it particularly important to explore whether its proposals might result in significant alterations in current business models, whether the proposed measures are the most appropriate to prevent unwarranted risks, or if there is some type of unintended consequence to those measures.

The responses will inform the drafting of more detailed rules, and a formal consultation will follow after the laying of the necessary statutory instruments. This roadmap is a pivotal point in the approach of the UK to the regulation of crypto, making the regime more structured and secure while allowing further innovation.

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UK Fortifies Crypto Framework To Ensure Market Integrity

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In a landmark move, the United Kingdom has strengthened its legal framework to fight financial crimes in the cryptocurrency industry. The Financial Conduct Authority (FCA) which supervises the growing crypto market of the UK will soon be endowed with more authority to tackle illegal activities surrounding digital assets.

The Economic Crime and Corporate Transparency Bill, launched last year, represents the turning point of this regulatory development. It is designed to grant UK authorities power to seize Bitcoin or other crypto funds should they be suspected of being involved in criminal activities. This crucial step also fits into the general plan to preserve safety within the banking system in Britain and stop hackers from engaging in the illegal use of virtual assets.

An item of property that is, or that contains or gives access to information that is likely to assist in the seizure […] of any crypto asset, the legislation said.

UK Legislation: Balancing Crypto Innovation And Security

The latest bill is not just a law enforcement instrument; it is a guiding star for investors and participants in the crypto-economy. The legislation provides a 90-day seizure period of digital assets during criminal investigations that allows it to act as a buffer against swift movements of illegal money often associated with digital assets related crimes.

The rule will come into effect on April 26, 2024. It is also intended to discourage people from using the technology for illegal activities, as it can lead to anonymous transactions. This message is clear; United Kingdom will not accommodate crypto crimes.

These moves are not meant to kill innovation or investment but rather to keep them safe. United Kingdom is giving a head start on how to have a safe cryptoworld for real growth but it also sets a stage for stable crypto environment that can facilitate true growth and build investor’s trust again.

The UK’s proactive approach is a significant milestone in synchronizing vitality of the virtual assets market with the solidity of the traditional financial controls. It is expected to become a model for other countries as they try to strike a balance between digital currencies’ potential and security needs.

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Crypto Regulation Lags Behind Due To FCA’s Lack Of Expertise, Says UK Audit Office

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The UK’s Financial Conduct Authority (FCA) is facing criticism from the National Audit Office (NAO) for its slow and ineffective regulation of the cryptocurrency industry.

The NAO issued a report named “Financial services regulation: adapting to change” on Dece­mber 8, 2023, accusing the FCA of being sluggish and unresponsive to the emerging risks and challenges posed by digital assets.

The report pointed out that the FCA took nearly three years to enforce action against illegal crypto ATM operators, which allow users to buy and sell digital currencies with cash. The FCA shut down 26 crypto ATMs in July 2023 as part of a coordinated investigation with other agencies.

While the FCA has required crypto-asset firms to comply with anti-money laundering regulations since January 2020, and began supervision work including engaging with unregistered firms, it did not begin taking enforcement action against illegal operators of crypto ATMs until February 2023, the NAO stated.

FCA Lacks Crypto Skills And Resources

The report also blamed the FCA’s delay in registering crypto firms under money laundering regulations on the lack of crypto skills and resources within the regulator. The FCA has only approved 41 out of the 300 digital asset firm applications that have applied for regulatory approval since January 2020.

According to the report, a deficiency in expertise related to digital currencies resulted in a delay for the FCA to register firms dealing with these assets under money laundering regulations.

The report acknowledged that the FCA had taken some steps to improve its digital asset regulation, such as releasing a “finalized non-handbook guidance” for digital asset firms to comply with the new crypto promotion rules that came into effect.

The new rules aim to prevent digital asset firms from misleading customers about the benefits and risks of using digital currencies and require them to display clear and prominent risk warnings.

The report concluded that the FCA needs to adapt to the changing digital asset landscape and enhance its capacity and capability to regulate the industry effectively and efficiently.

The report also urged the FCA to be more proactive and agile in responding to the evolving virtual currencies market and technology and to engage with the public and the industry to raise awareness and understanding of digital assets.

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Justin Sun-Backed Poloniex Lands On FCA’s Warning List

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In the wake of enduring four cyber attacks within the past two months, Poloniex, backed by Justin Sun, has found itself newly added to the Financial Conduct Authority’s [FCA] warning list of unauthorized companies in the United Kingdom. The Seychelles-based exchange is one of three entities connected to entrepreneur Justin Sun that have fallen victim to these security breaches.

The FCA, on December 6, published its warning blog post to include Poloniex, emphasizing that firms and individuals lacking the necessary authorization or approval cannot promote financial services within the UK. So far, the FCA has evaluated 291 applications from cryptocurrency companies seeking registration, with only 38 receiving approval. In October, it disclosed that 140 crypto firms, including HTX and KuCoin, were on its warning list. Since then, only one entity, PayPal UK, has obtained authorization from the regulator.

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Justin Sun-Backed Poloniex Lands On FCA's Warning List 3

Cryptocurrency companies are preparing for increased regulatory scrutiny as the UK’s financial services regulator, the FCA, implements a series of new rules to combat illicit marketing tactics in the industry. The measures, unveiled in June, involve the prohibition of refer-a-friend bonuses and the introduction of a “cooling-off” period requiring first-time investors to wait a full day before completing their transactions. This move has been characterized by analysts as an effort to provide consumers with “extra protection in the crypto Wild West.”

Justin Sun’s Exchange Hack Saga

Poloniex itself fell victim to a significant $100 million hack on November 10. The platform reported that it had largely completed its restoration efforts by the end of November and was gearing up to resume withdrawals and deposits. On December 5, the exchange reinstated deposit and withdrawal services for specific cryptocurrencies via the Tron network, outlining plans for a gradual implementation of these services for additional cryptocurrencies.

Notably, Justin Sun, the founder of Tron and owner of Poloniex, also possesses HTX, a crypto exchange formerly known as Huobi. In the past two months, platforms associated with Sun have suffered four cyberattacks. HTX experienced a loss of $8 million in a September attack and faced an additional $30 million loss due to a hot wallet breach in late November. Simultaneously, HTX’s HECO Chain Bridge, a tool facilitating the movement of digital assets between HTX and other networks like Ethereum, was compromised by hackers, resulting in the transfer of at least $86.6 million to suspicious addresses.

Coinbase vs. SEC: Navigating Murky Waters in a Regulatory Turf War

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Coinbase finds itself in the crosshairs of the U.S. Securities and Exchange Commission (SEC), igniting a legal battle that could have far-reaching implications for the industry. Despite the exchange’s attempts to seek clarity, Coinbase CEO Brian Armstrong revealed that they have faced a wall of silence from the SEC.

Armstrong disclosed in a recent interview that Coinbase has engaged with the SEC in no less than 30 meetings over the past 18 months. Despite these numerous interactions, the company claims to have received minimal feedback from the regulatory body regarding which crypto assets are deemed securities. Armstrong emphasized that the only exception was Bitcoin.

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Coinbase vs. SEC: Navigating Murky Waters in a Regulatory Turf War 5

The controversy escalated when Coinbase received a Wells Notice in March, a precursor to formal charges. The SEC followed through with legal action in June, accusing Coinbase of operating an unlicensed securities exchange.

Coinbase Denies Unlicensed Securities Charges

The regulatory body specifically targeted several cryptocurrencies listed on the platform, including Solana, Polygon, and Cardano, labeling them as unlicensed securities under U.S. federal law. Coinbase vehemently denies these allegations, asserting that the listed tokens do not meet the criteria for “investment contracts.”

Armstrong attributed Coinbase’s challenges to the regulatory landscape characterized by what he termed as “regulation by enforcement.” Frustrated by the lack of clear guidance and ongoing regulatory conflicts, the company is now exploring opportunities beyond the U.S. border.

The CEO highlighted a contrasting experience in the United Kingdom, where a single federal regulator oversees commodities and securities. Armstrong, who attended a government investment summit in the UK, praised the Financial Conduct Authority’s (FCA) productive engagements and regulatory clarity. He contrasted this with the U.S., where the turf war between the SEC and the Commodity Futures Trading Commission (CFTC) complicates crypto-firms’ matters.

Armstrong stressed the importance of regulatory clarity for international expansion and investment, citing the UK as an example of a favorable environment. He commended the pro-crypto stance of the UK government under Prime Minister Rishi Sunak and noted that such support has attracted new investments to the country.

In contrast to the situation in the UK, Armstrong characterized the regulatory environment in the U.S. as unclear, prompting Coinbase to consider legal recourse. Armstrong stated that the company may turn to the courts to establish case law if the SEC fails to clarify. Additionally, he expressed hope for congressional intervention, referencing two bills currently under consideration.

However, some lawmakers dispute Armstrong’s depiction of a regulatory turf war. During a joint hearing earlier this year, U.S. Representative Stephen Lynch suggested that claims of a turf war were an “industry-fueled” narrative, insinuating that concerns about regulatory ambiguity were a cover for non-compliance with existing laws. The unfolding legal saga between Coinbase and the SEC continues to capture the attention of the cryptocurrency community and regulators alike.

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UK Regulators Facilitate Blockchain Adoption For Investment Manager: Report

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UK investment managers receive backing from regulatory bodies to embrace blockchain technology for tokenizing funds, departing from traditional record-keeping methods. The Investment Association (IA) released a recent report advocating for fund tokenization, asserting that issuing tokenized units or shares on distributed ledger technology (DLT) would revolutionize the financial industry by enhancing efficiency and transparency.

The IA report emphasized the transformative potential of real-time record-keeping systems shared among all fund stakeholders. It highlighted significant benefits such as cost reduction in fund administration, streamlining reconciliation processes, and facilitating faster settlement times.

Sarah Pritchard, the Financial Conduct Authority’s (FCA) executive director of markets and international affairs, expressed the regulator’s openness to exploring innovative avenues for asset managers. However, she stressed the importance of assessing associated risks. Simultaneously, the report outlined fundamental principles for implementing tokenized funds, advocating for inclusivity across diverse sectors rather than a narrow focus on specific entities or customer groups.

Tokenized Funds Mandate UK Establishment and FCA Compliance

The proposed principles underscored the need for relevance to domestic and international investors, emphasizing the importance of a comprehensive delivery roadmap and prioritizing competitiveness and efficiency within the sector. Additionally, it mandated adherence to UK establishment, FCA authorization, and compliance with traditional financial industry standards while maintaining unchanged legal and regulatory rules.

According to a recent report, the UK government has recapped its commitment to promoting innovation within the country’s asset management industry. It praised the IA’s publication as a catalyst for advancing the role of technology in asset management. This portrays the UK as a welcoming environment for innovative ventures.

These developments come on the heels of recent reports indicating that investment firms in the UK have been bolstering their digital asset-focused personnel. Notably, a quarter of asset managers and hedge funds in the US, UK, and Europe have onboarded senior executives dedicated to overseeing digital asset strategies.

The survey found that 24% of asset management firms have already implemented strategies for managing digital assets, while another 13% plan to do so within the next two years. This increase in interest highlights the growing popularity of digital asset management strategies in the financial industry.

Ripple’s Legal Landscape Shifts: Attorney Deaton Challenges $770M Disgorgement

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In the ongoing legal face-off between Ripple and the U.S. Securities and Exchange Commission (SEC), Attorney John Deaton, a representative of XRP holders, has introduced a compelling argument that could potentially reshape the case’s outcome. His assertions, grounded in influential factors, cast doubt on the likelihood of Ripple facing the anticipated $770 million disgorgement.

Deaton’s legal strategy hinges on the Supreme Court’s Morrison ruling, a pivotal decision that curtails the SEC’s jurisdiction to sales occurring within the United States. This becomes particularly pertinent as scrutiny intensifies over Ripple’s XRP sales in regions beyond the U.S., including the United Kingdom, Japan, and Switzerland. The legal status of XRP in these jurisdictions, notably not classified as a security by entities such as the Financial Conduct Authority (FCA) in the U.K. and the Financial Services Agency (FSA) in Japan, further strengthens Ripple’s defense.

Ripple’s Charges Shift From Fraud To Regulatory Dispute

Deaton’s distinction is of utmost significance as he highlights that Ripple’s charges do not involve fraud but are a matter of regulatory disagreement. This nuanced outlook shifts the attention from punitive actions to the more comprehensive regulatory compliance issue.

Highlighting the global nature of XRP transactions, Deaton underscores the diminished potential for disgorgement. With a substantial portion of XRP sales outside the U.S. and involving accredited investors, the estimated disgorgement amount could significantly reduce, possibly exceeding 90%.

Moreover, Deaton points out that institutional XRP sales have not resulted in demonstrable harm. The current price of XRP, surpassing levels during those sales, indicates a lack of investor losses. Emphasizing the swift nature of On-Demand Liquidity (ODL) transactions involving XRP, occurring within seconds, Deaton argues that this immediacy minimizes the potential for investor harm.

Notably, accusations of harm are directed more towards the SEC than Ripple, particularly resonating among the 75,000 XRP holders actively involved in the legal proceedings. As Attorney John Deaton’s persuasive case unfolds, the landscape of Ripple’s legal battle against the SEC takes an unpredictable and potentially game-changing turn.

Crypto Guidelines: UK’s FCA Sets Clear Rules For Fair Marketing

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In a move aimed at ensuring transparency and fairness in the crypto market, the United Kingdom’s Financial Conduct Authority (FCA) has released a comprehensive handbook outlining the rules that crypto firms must adhere to when promoting digital assets. The FCA’s Guidance emphasizes the core requirement that promotions related to crypto assets must be fair, clear, and devoid of any misleading information.

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Crypto Promotion Guidelines

This finalized non-handbook guidance, titled “Cryptoasset Financial Promotions,” sets clear expectations for communication and approval of financial promotions concerning qualifying crypto assets. Importantly, the guidance builds upon existing regulatory obligations without introducing new ones. It offers insights into how authorized persons can ensure that financial promotions align with the rules as laid out in PS23/6, which covers financial promotion rules for crypto assets.

Furthermore, the FCA highlights the significance of complying with the Consumer Duty and offers insights into the steps authorized persons should take to meet their obligations under this duty. This move reflects the FCA’s commitment to safeguarding consumer interests and maintaining the integrity of the financial services industry.

The guidance is a culmination of efforts initiated on June 8, 2023, when the FCA released its final rules for cryptoasset financial promotions. These rules mandate that financial promotions must be fair, clear, and non-misleading. To ensure firms fully comprehend the implications of these requirements, the FCA also conducted a consultation on the proposed guidance.

Following the closure of the consultation on August 10, 2023, the FCA considered the feedback received, leading to the publication of the finalized guidance outlined in Chapter 2. The Annex summarizes the feedback received and the FCA’s responses. 

It is essential to note that the guidance does not impose new obligations but pertains to existing regulatory responsibilities. However, firms adhering to this guidance in the appropriate circumstances will be deemed to have complied with the relevant rules and requirements.

Notably, the FCA’s secondary international competitiveness objective, which occurred on August 29, 2023, was not in place when the final rules were published. Nevertheless, the FCA has integrated the spirit of this objective in its approach to safeguarding consumers while allowing for beneficial innovation that supports long-term economic growth in the UK.

The release of this guidance, aligned with the FCA’s primary objective of reducing consumer harm, aims to enhance compliance with existing rules and improve overall consumer outcomes. By ensuring that promotions are clearer and fairer, consumers can make better-informed decisions that align with their needs and risk profiles, thereby reducing the risk of trust erosion in the financial services industry and supporting long-term economic growth in the UK.

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PayPal UK Registers With FCA for Crypto Activities As It Rides High On Q3 Earning

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PayPal UK has taken a significant step in the world of cryptocurrency by registering with the UK’s Financial Conduct Authority (FCA). This move allows the company to engage in “certain cryptoasset activities” within the country. To operate in the UK’s crypto market, companies must gain registration approval and adhere to the FCA’s anti-money laundering regulations.

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In 2023, it became the fourth firm to secure FCA’s crypto registration, following Interactive Brokers, Bitstamp, and Komainu. This registration not only allows PayPal to operate within the UK crypto market but also permits the company to approve its own crypto-related communications in line with the recently imposed marketing regulations.

In August, the company had temporarily paused crypto purchases in the UK to comply with these new regulations. However, the registration on the UK crypto register does not impact this temporary pause, as clarified by a PayPal spokesperson.

The company spokesperson stated:

The Financial Conduct Authority has approved PayPal UK Ltd as an authorised electronic money institution and consumer credit firm, and registration as a crypto asset business, enabling the transfer of PayPal’s U.K. customer accounts to this new U.K. entity from PayPal Europe on 1 November 2023

Nevertheless, PayPal UK will have certain limitations. It won’t be able to expand its current crypto offerings into activities such as staking, exchanging crypto assets, participating in initial coin offerings, and engaging in decentralized finance activities like lending without obtaining permission from the FCA, as outlined on the regulator’s website.

Growth & Confidence at PayPal Holdings

Meanwhile, the company appears to be making strides in its turnaround efforts. Its third-quarter results surpassed analyst expectations, with adjusted earnings climbing 20% year-over-year to $1.30 per share and revenue reaching $7.4 billion, in line with projections. Total payment volume rose by 13% to $387.8 billion, though the total number of active accounts decreased by four million to 428 million.

Following these positive results, the company raised its full-year earnings forecast and announced Jamie Miller as its new chief financial officer, signaling its commitment to ongoing growth and development in the fintech sector. 

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MAS Partners With Japan And Switzerland To Boost Digital Asset Regulation

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In a game-changing maneuver, the Monetary Authority of Singapore (MAS) is poised to lead the charge in crypto-centric collaboration with influential European and Japanese counterparts. This revelation, unveiled by the distinguished Chinese journalist Colin Wu on X, represents a major leap forward in digital assets.

According to a recent report, MAS is joining forces with the Financial Services Agency of Japan (FSA), the Swiss Financial Market Supervisory Authority (FINMA), and the United Kingdom’s Financial Conduct Authority (FCA). Together, they aim to spearhead joint digital asset pilots, specifically focusing on fixed income, foreign exchange, and asset management products.

This initiative stems from Singapore’s ongoing Project Guardian, a landmark venture launched in 2022. Project Guardian saw Singapore’s central bank team up with 15 financial institutions to conduct pilots on asset tokenization, showcasing the substantial potential for enhanced transaction efficiency.

MAS And Global Partners Advance Digital Finance

The consortium’s objectives include the initiation of pivotal policy and accounting dialogues, the identification of potential risks and legal voids related to digital assets, and the exploration of common standards for designing digital asset networks. Additionally, the group will delve into best practices and regulatory sandboxes, furthering education in the digital currency sector.

Leong Sing Chiong, the Deputy Managing Director of Markets and Development at MAS, emphasized the collaborative effort’s overarching goal to delve deeper into understanding the multifaceted landscape of digital asset innovation, with a keen focus on both its potential opportunities and inherent risks. This strategic endeavor reflects a dedicated commitment to advancing knowledge and expertise in this dynamic crypto ecosystem.

Singapore has steadfastly committed to aligning with international financial authorities within the digital currency domain. In a momentous feat that unfolded in September 2023, MAS triumphantly completed a collaborative examination encompassing cross-border trading and settlement of wholesale central bank digital currencies. 

This pioneering venture, executed in conjunction with the Bank for International Settlements and the central banks of France and Switzerland, not only revalidated Singapore’s standing as a frontrunner but also underscored its vanguard role in shaping the ever-evolving landscape of digital finance.