UK crypto firms brace for firehose of new laws

The UK government is gushing with new crypto laws that are coming into effect over the next few weeks, as firms brace to comply with them.

The provisions are “causing firms to go crazy,” said Ian Taylor, board adviser to trade association CryptoUK and KPMG digital assets head. “It’s a huge resource requirement to be compliant, to be buying the expertise, and to implement processes and procedures internally.”

Last year, Prime Minister Rishi Sunak promised to transform London into a “crypto asset hub.” Now come the harsh realities of turning policy vision into regulatory reality.

Three new regulatory changes will add additional pressure on crypto firms’ compliance efforts. Today, the new Travel Rule kicks in, the Financial Services and Markets Act was implemented in August and new ads rules will snap into place in October.

Let’s start with the Travel Rule, a bid to prevent money laundering that will force crypto firms to collect identifying information about those sending and receiving transactions.

Implementation will be a challenge, according to UK policy lead Jordan Wain of Chainalysis. “Companies will need to get to grips with identifying relevant transactions, collecting relevant Travel Rule information, and creating a means to delay, reject or block transfers that do not meet the required criteria,” he said.

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Another big change will happen on Oct. 8. From that date, firms targeting the UK market must comply with rigorous new financial promotion laws. There are several pathways to ensure ads for crypto services are approved, and the Financial Conduct Authority has warned that failure to comply is a criminal offence that could land actors behind bars and with hefty fines.

“Some companies are so risk-averse that they are pausing all their promotions until they see how this thing lands, because they don’t know where to go to get somebody to sign off on it,” Taylor told DL News.

PayPal, for one, will stop crypto sales in the UK until 2024 to figure out how to work with the stricter rules on crypto promotions.

“We’ve been supporting crypto firms throughout the implementation period, engaging with registered and non-registered firms extensively,” an FCA spokesperson told DL News. “Where necessary, we’ve also set clear expectations for what we expect when these rules come in.”

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If a firm is registered with the FCA as a crypto service provider they will be authorised to promote their products. For now, that’s a list of 43 firms. Several exchange giants including Binance and OKX are not on that list.

“These new rules will only be effective if enforced against both UK-registered and non-registered crypto platforms equally,” Blair Halliday, Kraken’s UK managing director, told DL News. “There needs to be one set of rules for everyone.”

The new laws are expected to apply to any firm targeting the UK market — FCA rubber-stamped or not. How that will work out in practice will be seen as market participants adjust over the coming months.

“Many unregistered firms are likely scrambling to figure out how to comply,” said Jonathan Sepulchre, head of growth at FCA-registered crypto solutions firm Zumo.

“What we do know is now you have no choice,” Taylor said. “If you aren’t compliant, then you’re breaking the law, and then that will have consequences. If you get a knock on the door from the FCA, then they’re going to shut you down.”

Getting ready

The Travel Rule and the laws on financial promotions are not the only new additions to the UK’s regulatory landscape.

The FSMA is giving regulators more oversight over stablecoin issuers, which will be treated to standards on par with other financial services.

The FSMA came into force on Aug. 29, so now regulators need to draft implementation details.

The UK government is also expected to put forward a comprehensive crypto asset framework in the coming months.

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So, UK crypto firms have a lot on their plates.

“We’ve got to baby step it,” Taylor said. “We can’t throw too much at a nascent industry, which most people aren’t going to have the funds like bigger firms.” Smaller organisations will have the most intensive impact when it comes to resource requirements, he said.

Zumo’s Sepulchre agreed. The industry is showing “desire for regulations to be ‘drip-fed’ rather than introduced all at once,” he said.

Still, his firm has prepared for the new rules by strengthening its “governance procedures, particularly around the approval of financial promotions,” he said. “Additionally, we’ve integrated key customer activities directly into the technological aspect of the customer journey.”

Over at Kraken, the UK unit has also “dedicated significant resources to prepare for the regulatory changes,” Halliday said. At the end of the day, the new laws are a means for the UK to “fulfil its ambitions of becoming a global crypto asset hub.”

Got a tip about UK crypto policy? Contact the author at inbar@dlnews.com