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The recent HM Treasury Consultation gave a glimpse of the proposed changes to UK crypto regulation. Around a third of people believe they can complain to the FCA if there’s a problem, despite crypto being unregulated. That said, the crypto survey found that exchanges are only the fourth most important source of research. Discussion https://www.xcritical.com/ papers on admission and disclosures and market abuse are expected this quarter, with a consultation in Q3 of next year.
Understanding UK and EU cryptocurrency regulations
History accelerates after a crisis, and the 2020’s will be the decade in which the concept of money is redefined. The GeoEconomics Center investigates the rise of digital currencies and reevaluates the financial institutions that lead our global system. Standard setting bodies play an important role in creating governance and industry standards in addition to promoting global cooperation on crypto-asset regulation. Many jurisdictions Smart contract in the world are in the process of rolling out regulations for stablecoins, which are fiat-backed tokens. Click below to compare where the United States stands in comparison to the UK, EU and Japan, the latter two of which have already begun regulating stablecoins. Among the 60 countries we studied, cryptocurrency is legal in 33, partially banned in 17, and generally banned in 10.
Central bank digital currencies (CBDCs)
The order also introduced a time-limited exemption for FCA-authorised crypto asset firms to issue their own promotions, subject cryptocurrency regulations uk to certain conditions and safeguards. FSMA 2023 brings cryptoassets within the scope of the existing regulatory regime under Financial Services and Markets Act 2000 (FSMA 2000) in respect of “regulated activities” and “restrictions on financial promotions”. It has done so through amending the definition of “investment” for the purposes of financial promotions and regulated activity so that it now includes cryptoassets. In order to preserve flexibility in this rapidly developing area, HM Treasury has been granted the power to amend this definition. In a move with significant implications for the crypto sector, the UK has enacted legislation to bring cryptoassets within the scope of the existing financial services regulatory regime.
- Earlier this year, the United Arab Emirates managed to secure its own removal from the FATF’s Grey List, owing in part to progress it made in implementing a regulatory regime for cryptoassets.
- In this way, with Sanction Scanner, crypto businesses can comply with regulations and be protected from regulatory penalties.
- This clarity simplifies the reporting process for taxpayers and therefore promotes compliance.
- Both emerging-market and advanced economies still lag on comprehensive regulation and oversight.
- These efforts contribute significantly to establishing crypto-assets as assets and integrating them into financial practices.
- For example, the EU’s 6AMLD and GDPR are global leading initiatives, and the UK’s Financial Conduct Authority (FCA) coined the term RegTech.
Spotlight on stablecoin regulation
Effectively, this caught most security tokens that are like shares or debt instruments and collective investment arrangements that use tokens to represent investors’ interests. So it’s not been easy clearly to know quite where the perimeter fence is – but only firms carrying on certain activities in relation to cryptoassets falling within it have so far needed FSMA authorisation. The Government intends to include the financial services of cryptoassets within the regulatory framework established by the UK’s Financial Services and Markets Act 2000 (FSMA).
The continuous fight between regulators, broker-dealers, investors, and the crypto industry shows that the U.S. is still evolving, regardless of the frameworks introduced and the powers given to regulators. In the U.S., the Securities and Exchange Commission and other regulatory bodies are working on frameworks for cryptocurrencies, but there is still uncertainty. The United Kingdom reportedly will consider a comprehensive regulatory framework for the cryptocurrency sector in early 2025.
Existing literature notes that the nature of cryptocurrencies makes difficult to distinguish financial and technological risks (Dumas et al. 2021). Because the exchange rate between a cryptocurrency and a fiat currency is governed by supply and demand, it is very volatile and unpredictable (Woebbeking 2021). This makes “investing” in cryptocurrencies a risky business, fuelling calls for regulations to safeguard people from deceptive ads and scams. The purpose of this research paper is to compare and analyse how crypto-assets are regulated in the UK and Germany.
Governments around the world are looking to create regulations to prevent these harms while encouraging the innovative capabilities of cryptocurrencies. However, Germany has demonstrated a cautious yet supportive approach towards decentralized finance (DeFi). While acknowledging the transformative potential of DeFi, regulators have emphasized the need to ensure compliance with existing laws and to address concerns related to investor protection and financial stability. Both individuals and businesses involved in crypto-related activities are required to meet tax obligations.
They are commonly used for transactions and investments being acknowledged as a form of payment. Additionally, they are not considered legal tender and no value-added tax (VAT) is imposed when used for payments (IHK Munich 2023). For crypto-asset businesses to operate legally, they are required to register with the FCA.
The Act officially appointed the Financial Services Commission as a regulator for virtual assets and outlined their legal and illegal uses. Additionally, the Act ensured user protection by requiring issuers or service providers to follow certain practices. Australia classifies cryptocurrencies as legal property, subjecting them to capital gains tax. Exchanges are free to operate in the country, provided that they register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and meet specific AML/CTF obligations. The need for clear regulatory frameworks is one of the most pressing issues facing the crypto and blockchain space, PYMNTS reported in July. Regulatory clarity is crucial for the mainstream adoption and growth of cryptocurrencies.
Crypto assets may also enhance the efficiency, transparency and resilience of the financial system, by reducing transaction costs, processing times and operational risks. Crypto assets may also enable new business models, products and services, such as decentralised applications, smart contracts and decentralised finance (DeFi). In order to operate in the United Kingdom, crypto exchanges must register with the FCA, or, alternatively, apply for an e-money license. Similarly, bitcoin ATMs are legal in the United Kingdom, provided that they are licensed and regulated by the FCA. Currently, the United Kingdom has the most machines in a European country, with over 250 bitcoin ATMs across the country. Accordingly, there can be no guarantee that the contents of this article, and any statements set out in it, will not be challenged, corrected, overruled or contradicted in the future by the author or as a result of any external factors.
The aim is to understand and highlight the approaches taken by these two countries in terms of regulating crypto-assets and to explore the potential impact that their regulatory frameworks could have on the market for these crypto-assets. The research employs a doctrinal research design to examine the crypto-asset regulatory regimes in the UK and Germany. A comprehensive review of existing literature, official regulatory documents and relevant legal frameworks is conducted to understand the core components of each country’s crypto-asset regulations. The findings of this study reveal divergences in the regulatory approaches of the UK and Germany towards crypto-assets. While the UK has embraced a principles-based regulatory framework, fostering innovation and industry growth, Germany has adopted a more prescriptive and cautious approach, focusing on investor protection and market stability. The research identifies that the UK’s flexible approach has attracted a flourishing crypto-asset ecosystem, while Germany’s conservative stance has offered greater investor confidence.
For each country, the regulated actors can be cryptocurrency issuers, cryptocurrency exchanges, traditional financial institutions, service providers, or miners. For investors, engaging with regulated firms when dealing in qualifying digital assets can offer a layer of security and recourse not available with purely registered firms dealing in unregulated crypto activities. It’s essential for investors to understand these differences to make informed decisions and manage their risk exposure appropriately in the UK’s crypto market.
A holistic understanding of EU and country-specific regulations for investments, banking, payments and due diligence are required to understand the full scope of MiCA. It is also important to note that this includes companies that deal with this technology even tangentially, such as sending or receiving stablecoin payments. Alarmingly, stringent regulations could apply to a nonprofit that uses an open ledger to record data or statistics if there is any purchase or use of tokens involved.
Crypto exchanges and custodian wallet providers must comply with the reporting requirements set by the Office of Financial Sanctions Implementation (OFSI). Crypto firms must notify the OFSI as soon as possible if they know or have reasonable suspicion that a person is subject to sanctions or has committed a financial sanctions offense. But in 2023, a district court of appeals decided that Ripple’s sale of XRP were securities offerings only when sold to institutions, not when they were sold on exchanges. This was one partial victory for the crypto industry—it was followed by another decision in November that vacated the Commission’s denial of Grayscal’s application to convert its Bitcoin ETF Trust to an ETF that holds bitcoin. The court ordered the Commission to re-review the application, which eventually led to the approval of the first Bitcoin Spot ETFs in January 2024 and Ethereum Spot ETFs in July 2024. The SEC is already regulating the sector, demonstrated by its lengthy list of filings against crypto-centric businesses and projects, such as lawsuits and complaints against Ripple, Coinbase (COIN), Binance (BNB), and many others over their crypto products and services.