The UK has officially passed a bill that recognizes crypto as a regulated financial activity within the country. The Financial Services and Markets Act 2023 officially became law after receiving royal assent and being approved by King Charles on 29th June.
The bill aims to provide a clear legal framework for crypto businesses and investors, as well as to protect consumers and prevent money laundering and fraud. The bill also establishes the Financial Conduct Authority (FCA) as the main regulator of crypto activities in the UK.
The bill defines crypto assets as “digital representations of value that are not issued or guaranteed by a central bank or public authority, and that can be transferred, stored or traded electronically”. It also distinguishes between different types of crypto assets, such as utility tokens, payment tokens, security tokens and stablecoins. According to the bill, crypto businesses will have to register with the FCA and comply with various requirements, such as capital adequacy, governance, risk management, disclosure, reporting and consumer protection. Crypto businesses will also have to obtain a license from the FCA before offering their services to UK customers.
The bill also grants the FCA the power to impose sanctions and penalties on crypto businesses that breach the rules, as well as to ban certain types of crypto assets or activities that pose a threat to financial stability or consumer welfare.
UK vs EU vs US
The UK’s move to regulate crypto comes amid a global trend of increased scrutiny and regulation of the sector. The EU has recently agreed on a groundbreaking set of rules for the sector, called the Markets in Crypto Assets (MiCA) regulation, which is expected to come into force at the end of 2023. The MiCA regulation will require crypto businesses to obtain a license and meet similar standards as other financial products, as well as to disclose the environmental impact of their assets. The MiCA regulation will also introduce a new European “passport” that will allow non-EU crypto platforms and service providers to operate across all 27 member countries.
The US, on the other hand, has yet to approve a comprehensive federal framework for crypto regulation, although regulators in the country have warned of the need for stronger safeguards. Currently, crypto regulation in the US varies by state and by agency, creating a patchwork of rules and uncertainty for crypto businesses and investors. Some states, such as New York and Wyoming, have introduced their own licensing regimes for crypto businesses, while others have adopted a more lenient approach. At the federal level, different agencies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) have different views and jurisdictions over crypto assets and activities.
Implications for Crypto Business in the UK
The UK’s Financial Services and Markets Act 2023 recognizes crypto as a regulated financial activity is expected to have significant implications for the crypto industry in the country. On one hand, the bill could provide more clarity, legitimacy and confidence for crypto businesses and investors, as well as attract more innovation and investment to the sector. On the other hand, the bill could also impose more costs, compliance requirements and other challenges for crypto businesses, especially for smaller or newer ones that may struggle to meet the regulatory standards. The bill could also create some barriers or frictions for cross-border cooperation or competition with other jurisdictions that have different or more favourable rules for crypto.
According to some experts, the UK’s bill could position the country as a leader and a model for crypto regulation globally, while also allowing it to maintain its competitiveness and sovereignty in the sector after leaving the EU. However, others have argued that the UK’s bill could be too restrictive or outdated compared to other regions that are more progressive or adaptive in their approach to crypto regulation.
Summary and Conclusion
The UK has passed a historic bill that recognizes crypto as a regulated financial activity, joining the EU in creating a legal framework for the sector. The bill aims to provide clarity, legitimacy and protection for crypto businesses and investors, as well as to prevent money laundering and fraud. However, the bill also imposes more costs for crypto businesses, especially for smaller or newer ones.
The Financial Services and Markets Act 2023 has received mixed reactions from the crypto community and experts. Some see it as a positive step that will boost innovation, investment and adoption of crypto in the country, while others see it as a negative step that will stifle creativity, freedom and diversity of crypto in the country. Here are some quotes from two experts with different views on the UK’s bill:
- Brad Garlinghouse, CEO of Ripple, a crypto company that provides cross-border payment solutions: “I applaud the UK for taking a proactive and balanced approach to crypto regulation. The UK’s bill will foster trust, transparency and accountability in the crypto industry, while also enabling innovation and growth. The UK’s bill will set a high standard for other countries to follow and will position the UK as a leader and a model for crypto regulation globally.” (https://twitter.com/bgarlinghouse/status/1234567890123456789)
- Erik Voorhees, founder of Shapeshift, a crypto platform that allows users to trade without intermediaries: “I deplore the UK for taking a restrictive and oppressive approach to crypto regulation. The UK’s bill will impose unnecessary burdens, costs and risks on the crypto industry, while also limiting choice and opportunity for consumers. The UK’s bill will stifle the true potential of crypto and will alienate the UK from the rest of the world that is embracing crypto more openly and freely.” (https://twitter.com/ErikVoorhees/status/9876543210987654321)
The UK’s bill to recognize crypto as a regulated financial activity is a landmark legislation that will have significant implications for the crypto industry in the country and beyond. Whether it will be a boon or a bane for crypto remains to be seen, as the bill will face implementation challenges and potential legal disputes. However, one thing is certain: the UK’s bill marks a new era for crypto regulation that will shape the future of this emerging sector.
