Why are crypto companies moving to the UK? | Credit: Shutterstock
Key Takeaways
- The United Kingdom unveiled a comprehensive suite of documents addressing stablecoin regulation.
- PayPal UK Ltd has successfully registered as a crypto service provider with the FCA.
- The UK Treasury has unveiled its final proposals for regulating crypto asset activities.
- New advertising regulations demanding crypto companies present transparent risk labels came into effect on October 9.
The UK’s Financial Conduct Authority has started issuing licences to complaint crypto exchanges – these are listed below, along with dates when their licence was issued.
Crypto Companies With An FCA Licence
| Exchange | Date |
|---|---|
| PayPal UK | November 2023 |
| Bitstamp | June 2023 |
| Revolut | September 2022 |
| Crypto.com (Foris Dax UK Ltd) | August 2022 |
| Uphold | February 2022 |
| eToro | January 2022 |
| Zumo | December 2021 |
| Kraken (Payward Ltd) | November 2021 |
| CoinJar | September 2021 |
| Coinpass | August 2021 |
| Solidi | July 2021 |
| Ziglu | September 2020 |
| Gemini | August 2020 |
The UK government announced in April 2022 plans to turn the country into a hub for cryptocurrency asset investment and technology.
The EU and UK plan to implement legislation specifically for cryptocurrencies throughout 2023, which will provide the market for digital assets with a level of security and responsibility that it has never had before.
The EU’s Fifth Anti-Money Laundering Directive (5AMLD) no longer imposes legal obligations on the UK, however, the country still chose to incorporate the requirements for regulating cryptocurrencies from 5AMLD and 6AMLD into domestic law.
The Financial Promotions Regime , presently the subject of consultation, and the Financial Services and Markets Bill , which addresses stablecoin regulation, are further pertinent laws. Crypto asset exchange providers, who exchange crypto assets for cash or another cryptocurrency, or who swap crypto assets, and custodian wallet providers, who look after or manage crypto assets on behalf of their clients, are examples of cryptocurrency firms that must register.
Stablecoin Regulation to Foster Secure Crypto Ecosystem
On November 6, the United Kingdom unveiled a comprehensive suite of documents addressing stablecoin regulation. These documents included a discussion paper from the Financial Conduct Authority (FCA) and a similar paper from the Bank of England (BOE).
Alongside these, the BOE’s Prudential Regulatory Authority (PRA) released a letter directed to the CEOs of deposit-taking institutions, and the BOE itself provided a “cross-authority roadmap” to facilitate connectivity between these elements.
The stage for this release was set on October 30 when His Majesty’s Treasury outlined its regulatory intentions in a brief document. However, the FCA’s discussion paper went into significantly greater detail on the subject.
The FCA emphasized that stablecoin regulation represents the initial step towards a broader regulatory framework for crypto assets. Their discussion paper explored potential use cases for stablecoins in both retail and wholesale settings. Among the topics discussed were the need for auditing and reporting, the backing of coins by the issuer, and the independence of custodians responsible for these backing assets.
A focal point of the discussion was the application of the “same risk, same regulator outcome” principle. The paper proposed utilizing the existing client assets regime as the foundation for crafting rules regarding redemption and custodianship.
Additionally, it suggested referencing the senior management arrangements, systems and controls sourcebook for the organization of business affairs. Notably, the regulatory framework encompasses various aspects, including operational resilience and financial crime prevention.
PayPal Joins FCA-Approved Crypto Companies in the UK
The UK Financial Conduct Authority (FCA) website confirmed that the financial services giant PayPal has successfully registered as a crypto service provider.
PayPal UK Limited is permitted to engage in “certain cryptoasset activities” following its addition to the register on Tuesday. Companies that offer bitcoin services in the UK must be registered with the FCA and follow its anti-money laundering guidelines.
PayPal will now be allowed to authorize its own communications relevant to cryptocurrencies under the recently implemented marketing restrictions by landing on the register, which became live in 2020. In August, PayPal announced that it was temporarily halting cryptocurrency sales in the country in order to comply with the regulations.
PayPal became the fourth company this year to receive the FCA’s crypto registration, following Bitstamp, Komainu, and Interactive Brokers.
“The FCA has approved PayPal UK Limited as an authorised electronic money institution and consumer credit firm, and registration as a cryptoasset business, enabling the transfer of PayPal’s UK customer accounts to this new UK entity from PayPal Europe on 1 November 2023,” the company stated .
It further said that there had been a shift following the UK’s exit from the EU. PayPal Europe has thus far catered to customers in the United Kingdom, offering its users the same products and services.
UK Treasury Final Plans for Regulation Unveiled
The final recommendations for regulating crypto assets were released by the UK government, which gave a thorough response to its consultation. These proposals were based on information from experts, businesses, and market events, “including the failure of FTX.”
The recommendations make forth the desire of the UK government to include some activities related to cryptocurrency assets inside the financial services regulatory purview for the first time. “The government’s position is that firms dealing directly with UK retail consumers should be required to be authorised irrespective of where they are located,” the report stated.
The memo outlined the new requirement for enterprises engaging in crypto asset activity to obtain authorization from the Financial Conduct Authority of the United Kingdom. The authorization would stipulate that cryptocurrency exchanges must develop comprehensive guidelines for admission and require disclosures when listing new assets.
Lack of Established Regulations for DeFi
The report stated that DeFi regulation would not be undertaken at this stage of development, and the final plans did not address the regulation of decentralised finance.
“In line with consultation responses, HM Treasury recognizes that it would be premature and ineffective for the UK to regulate DeFi activities currently. Instead, the government will support efforts at the international level through work at both the FSB and standard-setting bodies to inform a future domestic framework,” the report said .
As per the UK Treasury, the ultimate plans aim to fulfil the country’s desire to lead the financial services sector in terms of innovation and technology related to crypto assets.
The report also mentioned that the proposals plan is to create the conditions for crypto asset service providers to operate and grow in the UK, whilst managing potential consumer and stability risks.
Finalizing Crypto Regulatory Framework
After the consultation period for the most extensive regulatory system for cryptocurrencies expired in April, the Financial Conduct Authority (FCA) released the recommendations on crypto advertising in June of this year.
The United Kingdom aims to foster a favorable climate for both service providers and customers by implementing clear regulations in a prompt and proactive manner. While crypto businesses must be open and honest about how they operate in order to demonstrate their resiliency and sustainability, it’s also essential that customers are aware of the hazards associated with cryptocurrencies, including high volatility, frauds, and hacks, just as with any other early-stage financial instrument. British authorities have taken swift action to eliminate regulatory uncertainty, which is a major factor in the list of “reasons why crypto growth is hindered.”
Cans and Can’ts
The Financial Conduct Authority (FCA) of the UK has issued new regulations that apply to all cryptocurrency marketing, including the prohibition of rewards like referral bonuses. The regulator stated that the regulations would take effect on October 8.
Some cryptocurrency companies, including PayPal , Luno , and Bybit, have decided to leave Britain due to the new regulations. In March 2023, Binance cancelled its FCA registration. It primarily means that the U.K.-based cryptocurrency companies will have the chance to get a competitive edge regarding their regulatory strategy. On the other hand, it forces cryptocurrency service providers to reconsider how they may assist customers in making wise investment decisions without using promotional material.
The crucial task of serving as the primary onboarding point for crypto enthusiasts, particularly novices, has been assigned to centralized exchanges. Although Bybit and Binance may have given up, there are still some companies making additional efforts to broaden their product offerings.
Bitget, with its ecosystem of associated activities, from launchpad to initial listing, launchpool, structured and/or principal-guaranteed investment product range, is one of the remaining possibilities for U.K. cryptocurrency proponents. Considering product innovation and regulatory compliance in a very fast-paced environment, it is a significant workload, but they are doing it in exchange for the widespread acceptance of cryptocurrencies, which should be beneficial to all parties.
OKX is a noteworthy name as well. In addition to providing a wide variety of conventional trading choices, it also has extensive NFT Marketplace functionality in addition to the Web3 Yield platform. Even in the face of previous difficulties like the 2020 fund-freezing episode, OKX is still committed to strong security measures.
Another prerequisite for promoting cryptocurrency is “clear risk warnings.” This is beneficial because users must take responsibility for their actions and educate themselves about cryptography from both a descriptive and a technical standpoint. Each of Bitget, OKX, KuCoin, Bybit, and Binance has a dedicated section with educational resources called academy, where anyone may find the necessary compass to travel through the constantly changing landscape of cryptocurrency.
These examples demonstrate how the FCA’s new PR regulations may be “worked around” while still providing the ideal environment for the success of crypto enterprises.
Bitget, Bitpanda, Kraken, Zumo, and Bitstamp did not immediately respond to a request for comment.
The “Travel Rule ,” which took effect on September 1, 2023, obliges UK-based enterprises that deal in cryptoassets to gather, confirm, and share data about cryptoasset transfers.
The Travel Rule, which harmonizes procedures for sending and receiving transactions by enterprises dealing in cryptoassets with those used by other financial services industries, has been urged for fast implementation by other jurisdictions by the Financial Action Task Force (FATF) .
In June 2023, FATF emphasized the difficulties brought on by the Travel Rule’s uneven enforcement across jurisdictions and delays in its adoption. In order to provide guidance on how to comply and what we reasonably expect of businesses before other nations adopt the UK’s approach, we have worked extensively with the industry.
How Does the FCA Work?
Companies in the UK that are allowed to “carry out crypto asset activities” are required to enter the crypto register with the FCA or to have been given temporary operating permission. The financial watchdog previously issued “shut down or face further action” orders for local crypto ATM providers, as well as a suspension order for Binance Markets Limited’s UK operations.
To provide cryptocurrencies a bigger role in the country’s financial services sector and to foster innovation in the field, lawmakers in the UK have been advocating a comprehensive legal framework for crypto-assets.
FCA says it wants to see how it might strengthen the market integrity of the asset class with its counterparts around the world, given how crypto transcends national boundaries.
The Government’s consultation suggests granting authority to FCA over entities engaged in cryptocurrency-related activities that don’t originate from or have a basis in the UK but do offer services to UK customers.
The Treasury may decide to implement equivalent rules in the future. There, companies with authorization from overseas will be able to offer services in the UK without the need for a local presence. Equivalent standards and a suitable and efficient framework for collaboration must exist in that nation for this to operate.
However, FCA admits the development of many jurisdictions’ approaches to regulating crypto assets and crypto asset services is still in its early stages.
