UK: Uncertainties in cryptoasset regulation

Following the recent publications of two consultation responses concerning cryptoasset promotions (see Treasury’s response on expanding the financial promotions regime and the FCA’s response on high risk investments, including cryptoassets), the Financial Markets Law Committee (FMLC) has sent a letter to the UK Government highlighting examples of legal uncertainty arising in relation to the regulation of cryptoassets and related activities in the UK.

Key areas of legal uncertainty highlighted in the FMLC’s letter include:

  • the regulatory proposals to expand the financial promotions regime to include cryptoassets may lead to creating a complex authorisation scheme with respect to cryptoassets. Until now, the existing financial promotion regime has worked together with and complements the regulated activities regime established under the Financial Services and Markets Act 2000 (FSMA), but the FMLC is concerned that there is little connection between the proposed regulation of cryptoasset promotions and the authorisation regime in FSMA;
  • the FMLC highlights examples of further confusion as some commentators have understood the ability to grant approval of financial promotions (required by unauthorised firms) extends to firms that do not have a Part 4A permission but that are registered under the Money-Laundering Regulations 2017 or the Electronic Money Regulations 2011; and
  • it is unclear where the proposed regulatory regime addressing stable-coins will stop and where the e-money regime will start. This is significant as the financial promotion regime will apply to stable-coins but not to e-money. Stakeholders have highlighted to the FMLC further questions arising around which authorised firms, if any, will approve cryptoasset promotions should proposed FCA rules regarding the expertise of approving firms come into force.

The FMLC is therefore recommending that authorities consider a co-ordinated approach to creating a bespoke regulatory regime for cryptoassets, which may be informed by existing regimes, but which tailors requirements to accommodate the novel aspects of the asset type so as to offer a single, coherent and appropriately calibrated regime just for cryptoassets.

Given the increasing complexity surrounding cryptoasset regulation, it is likely that the FMLC's sentiment would be echoed through industry who seek a clear way forward as the market rapidly expands.

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