The Hidden Advantage: Why the UK is a Regulatory Powerhouse for Cryptocurrency
As the cryptocurrency market continues to evolve, conventional wisdom would suggest that the United Kingdom, outside the European Union economic bloc, is a relatively small player compared to markets like China and the United States. However, in the world of cryptocurrency, the rules are far from set, and the UK has several overlooked and misunderstood advantages relative to other markets that it would do well to seize on in the current emerging regulatory landscape.
A Global Financial Hub
London’s leading position as a global financial hub gives the UK regulation a significant global influence. In fact, it is now non-negotiable when selling a fungible, transferable token from any country that requires observation of UK financial promotion rules if the communication can affect the UK. This means that companies operating in the cryptocurrency space must comply with UK regulations, which are some of the most stringent and robust globally.
Regulatory Superpowers
A breach of the UK rules is punishable by up to two years imprisonment and an unlimited fine. Furthermore, the Financial Conduct Authority (FCA) has recently published guidance that firms providing on/off-ramp services to crypto firms conducting illegitimate activities could themselves be committing an offense or facilitating an offense. Firms breaching the FCA rules risk losing their banking and payment rails, which is a significant threat to their business operations.
The Growing Interest of Regulators
The new guidance also highlights the growing interest from the FCA in taking action to ensure that the UK’s rules are complied with. Marketing materials that purport to promote investment activity in a token must be created to comply with or fall out of the regulatory scope of the UK Financial Promotions regime. This means that companies operating in the cryptocurrency space must be extremely careful when creating marketing materials, ensuring they comply with UK regulations.
Growing Regulatory Clarity
As regulatory clarity grows, it makes sense for cryptocurrency companies to take a risk-based approach when entering a new market and engaging with ethical third parties to scale their ventures. For companies looking to expand into the EU, the Markets in Crypto-Assets (MiCA) regulation creates several challenges and opportunities that can be approached from a stronger position than many think when based outside the EU.
The Challenges of MiCA
Although 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 only likely to be a couple of winners. We are already seeing some divergence between EU member states in this respect, for example, in terms of the level of taxes imposed on crypto firms and the ease with which firms can interact with existing infrastructure to sell products.
Divergence Among EU Member States
There’s also some difference around whether there is the ability to leverage pre-existing licenses to reduce the cost of going to market. The level of substance required to obtain a license, such as the required number of local directors and whether local banking support is needed and available, also plays a role. From this perspective, non-EU cryptocurrency companies can choose the best jurisdiction.
The Cost of Compliance
However, taking careful consideration, advisers in each jurisdiction will seek to sell themselves. The cost differences can be substantive, as we see companies using specific strategic solutions to reduce EU access costs by around 90%. Given the cost of compliance with MiCA can be minimized, companies are looking to headquarter their corporate group in the UK thanks to its deep network of legal and financial services, world-class universities and regulatory impact.
Why Choose the UK?
While Web3 natives do not see the UK as market-leading because English law is often used for international business deals, regulators are usually interested in the UK’s position in drafting their frameworks. In fact, it is worth noting that the outcome of the European Securities and Markets Authority’s guidance on reverse solicitation provided under MiCA, while phrased differently, leads to a similar outcome as the UK financial promotion rules.
The Collaborative Approach
We have also found through advising various regulators globally that they are always interested in seeing what the UK regulatory position is, and indeed, we have seen collaboration among regulators to set common minimum global standards. Companies that take a UK-first approach to their products benefit from an established and robust legal framework internationally recognized by other jurisdictions, setting out their requirements for regulating crypto asset businesses.
The Unseen Benefits
Businesses and investors would do well to consider these all-too-often overlooked regulatory advantages that being based in the UK offers when planning for the future. The UK’s regulatory environment is one of the most robust globally, providing a high level of protection for consumers and investors while also creating a favorable business climate.
Conclusion
In conclusion, the UK is a regulatory powerhouse for cryptocurrency, offering a unique combination of strict regulations and a collaborative approach to regulation. While other markets may seem more appealing, companies operating in the cryptocurrency space would do well to consider the benefits of basing their operations in the UK. With its deep network of legal and financial services, world-class universities, and regulatory impact, the UK is an attractive destination for businesses looking to scale and grow.
About the Author
[Author’s Name] is a leading expert in cryptocurrency regulation and has advised numerous companies on navigating the complex regulatory landscape. They are passionate about promoting a favorable business climate for innovative companies while also protecting consumers and investors.
