As the cryptocurrency market continues to evolve, conventional wisdom would have us believe that the United Kingdom is at a disadvantage relative to larger markets like China and the United States. However, this perspective neglects the fact that the rules of the game are far from set in the crypto space, and the UK has several overlooked advantages that it can leverage in the current emerging regulatory landscape.
Global Financial Hub
London’s position as a global financial hub gives the UK significant influence over global regulation. In fact, when selling a fungible, transferable token from any country, observance of UK financial promotion rules is required if the communication can affect the UK. This means that companies looking to expand into new markets must take into account the UK’s regulatory requirements.
UK Regulatory Superpowers
The Financial Conduct Authority (FCA) has recently published guidance on the regulation of cryptocurrency firms, highlighting the importance of compliance with UK rules. Breaches of these rules can result in up to two years imprisonment and an unlimited fine, making it essential for companies to prioritize regulatory compliance.
Furthermore, the FCA’s recent guidance on on/off-ramp services has highlighted the growing interest from regulators in taking action to ensure that the UK’s rules are complied with. Companies providing such services risk losing their banking and payment rails if they fail to comply with FCA regulations.
Marketing materials promoting investment activity in tokens must be created to comply with or fall out of the regulatory scope of the UK Financial Promotions regime. This highlights the importance of understanding the nuances of UK regulation and ensuring that companies take a risk-based approach when entering new markets.
Growing Regulatory Clarity
As regulatory clarity grows, it makes sense for cryptocurrency companies to take a proactive approach to compliance. Companies looking to expand into the EU must navigate the complexities of the Markets in Crypto-Assets (MiCA) regulation, which creates several challenges and opportunities that can be approached from a stronger position than many think when based outside the EU.
EU Member States
While MiCA purports to be a single regime, experience shows that different EU countries will seek to position themselves as the ‘go-to jurisdiction.’ In practice, there are likely to be only a couple of winners. We’re already seeing some divergence between EU member states in terms of taxes imposed on crypto firms and the ease with which firms can interact with existing infrastructure.
The level of substance required to obtain a license also plays a role, with different countries having varying requirements for local directors, banking support, and other regulatory necessities. Non-EU cryptocurrency companies can choose the best jurisdiction based on these factors, but careful consideration is needed as advisers in each jurisdiction will seek to sell themselves.
Cost of Compliance
The cost of compliance with MiCA can be minimized by headingquartering a company’s corporate group in the UK, which offers a deep network of legal and financial services, world-class universities, and regulatory influence. While Web3 natives may not see the UK as market-leading due to English law being used for international business deals, regulators are interested in the UK’s position in drafting their frameworks.
It’s worth noting that the outcome of the European Securities and Markets Authority’s guidance on reverse solicitation provided under MiCA leads to a similar outcome as the UK financial promotion rules. Collaboration among regulators has also led to common minimum global standards being set.
Companies Taking a UK-First Approach
Companies taking a UK-first approach to their products benefit from an established and robust legal framework that is internationally recognized by other jurisdictions. This framework sets out requirements for regulating crypto asset businesses, providing a solid foundation for companies looking to expand into new markets.
Businesses and investors would do well to consider the often-overlooked regulatory advantages that being based in the UK offers when planning for the future. By taking a proactive approach to compliance and leveraging the UK’s influence over global regulation, companies can navigate the complexities of the crypto space with confidence.
Conclusion
The UK may not be seen as a major player in traditional trade negotiations due to its smaller market size, but it has several advantages that can be leveraged in the emerging regulatory landscape of cryptocurrency. By prioritizing compliance and taking a proactive approach to regulation, companies can benefit from the UK’s established and robust legal framework.
As the crypto space continues to evolve, businesses and investors would do well to consider the often-overlooked advantages that being based in the UK offers. With careful consideration and planning, companies can navigate the complexities of regulation and position themselves for success in this rapidly changing landscape.
About the Author
Pavan Kaur is a partner at Gunnercooke LLP and advises on cryptocurrency and blockchain-related matters. She has extensive experience in financial services law and has worked with various clients in the crypto space.
You can follow Pavan on Twitter @pavankaurlaw or reach out to her directly for further information on this article or any other related topic.
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