The UK’s cryptocurrency landscape is undergoing major changes under financial services and markets law. This pivotal development, which represents a substantial change in regulatory approach, aims to subject businesses using cryptocurrencies and stablecoins to rigorous standards similar to traditional financial services.
cryptocurrency exchange Companies like Coinbase, Crypto.com, and Gemini have already begun taking action in response to these new regulations. They have introduced risk assessment and financial tests for UK users, which include a declaration of investor profile and associated questionnaires. These steps are important to comply with requirements that require cryptocurrency companies to inform users of the risks associated with cryptocurrency trading and advertise their services responsibly. In particular, failure to complete these actions will result in users being unable to transact with their cryptocurrency account.
The wider framework for these regulatory changes has been set out by the UK government, which is intended to balance innovation with financial stability and clear regulatory standards. New specific regulatory activities will be created for cryptocurrencies, similar to activities in traditional financial markets. As a result, cryptocurrency-native companies whose primary business is cryptocurrency require full cryptocurrency approval and oversight. Financial Conduct Authority (FCA). Additionally, traditional financial firms will have the opportunity to expand their mandate to include cryptocurrency asset activities.
In addition to the direct impact on companies operating within the UK, these regulations extend their scope to overseas companies providing services to UK customers. These companies require authorization in the UK, but exceptions such as ‘reverse recruitment’ are being considered. This new regulatory environment includes a variety of activities, including trading, custody, and lending, each with specific requirements. For example, trading venues must provide fair access rules, transparent fee schedules, and effective conflict of interest management. Cryptocurrency brokerages are regulated similarly to investment company regulations, with an emphasis on consumer protection and detecting market abuse.
HM Treasury is also looking into the regulation of decentralized finance (DeFi) and is trying to understand how regulatory outcomes achieved in traditional finance can be applied to DeFi. This includes considerations for cryptocurrency investment advice and portfolio management and how these services fit with current regulatory practices.
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