What are the most notable developments?
One of the most significant implications of the new regulations is that crypto firms that wish to market regulated activities to UK consumers are required to have an establishment in the UK and be authorised here. Firms that do not meet these criteria must apply to the FCA for new (or varied) authorisation.
This will have a direct impact on crypto platforms and exchanges, as well as firms that provide related services or activities.
Inevitably, the requirement for registration will give the FCA greater oversight of firms operating in the crypto sector and their specific operations, including in relation to financial promotions where the FCA (recently) has increased its focus.
Another notable development is the explicit recognition of crypto assets as a type of investment that falls within the scope of existing financial services regulation and supervision.
This means that cryptocurrencies, cryptoassets and related activities will fall to be regulated by the FCA in much the same way as it oversees the issue and trading of stocks and bonds, and related services.
How is the sector likely to react?
The FCA’s director of consumer investments, Lucy Castledine, has insisted the authority will take action against any firms illegally marketing to UK consumers.
At the same time, there is a concern over the reluctance or refusal of some overseas and unregulated crypto firms to commit to the new regime.
Perhaps foreshadowing this, the FCA has indicated that firms may be able to apply for more time to comply with the tougher rules – for example, some firms may be permitted time until January 2024 to introduce features that require greater technical development.
As these changes are brought into force, it remains to be seen how robustly the FCA will crack down on firms.
There are questions over whether it has sufficient staff levels with the relevant capability to properly and comprehensive monitor and police the sector, in particular considering the overseas firms that market investment opportunities to people in the UK.
Certainly, the FCA’s registration process to date has been considered cumbersome and slow, and the amendments will only increase the pressure on its resources.
To have the impact required, we will need to see robust and decisive action from the FCA.
In the meantime, while the new legislation beds in, consumers should carefully scrutinise the opportunities presented to them and specifically consider the extent to which the relevant crypto company has engaged – or at least taken steps to engage – with the developing regulatory framework.
At the same time, change is often a catalyst for disputes.
With any regulatory developments, there is an inevitable learning exercise as the market responds to and implements the necessary changes to their businesses.
