The UK’s Latest Crypto Regulations: Will Other Countries Follow?

Stablecoins - crypto that has a value “pegged” to a fiat currency - in particular, are subject to these new regulations. The issuance and custody of these crypto assets will now fall under the Financial Services and Markets Act 2023 (FSMA 2023). The regulations mainly change how crypto can be marketed but also affect other areas of crypto trade, too. 

Let’s explore what these new regulations mean for crypto investors in the UK, when they come into effect, and whether or not other countries will introduce their own regulations. 

What Are the New UK Crypto Regulations? 

The new UK crypto regulations detailed by FSMA 2023 are as follows: 

• Cryptoassets will be recognized as investments by the FSMA - This means that the issuance, arrangement of deals, and management of investments related to cryptocurrency can only be carried out by people recognized by the Financial Conduct Authority (FCA) (or, people who are officially exempt from FSMA 2023). 
• Crypto promotions are now restricted - You can no longer promote cryptocurrency through invitations or other initiatives designed to encourage crypto investments unless they are authorized by the FCA. 
• Incentive ban - Refer a friend, new joiner bonuses, and other incentives are banned. 
• Mandatory cooling-off period - Firms must now provide a 24 cooling-off period after making a direct offer financial promotion (‘DOFP’). 
• Client categorization - Firms must categorize each investor as either a high network, restricted, or sophisticated investor. 
• Risk warnings - Crypto investments must now come with risk warnings, detailing that investors may lose all the money they invest. 

Will the new regulations change crypto? 

The new regulations are in no way meant to stop the use of crypto; rather, they are to encourage the widespread adoption of crypto as a valid currency by establishing trust and reliability between crypto sellers and investors. 

By regulating stablecoins, making purchases using crypto will become more widespread and safer throughout the UK. For example, crypto gambling platforms are already commonplace, but some users wonder if their funds are safe due to a lack of regulation within the industry. With better regulations, players can relax in the knowledge that their funds are protected and that they can back out if they choose. However, it’s yet to be seen how this could affect welcome and ongoing bonuses at these platforms, since incentives are banned under the new rules. 

Influencers will also be greatly affected by these new rules, particularly as they often rely heavily on many of the aspects that will now be banned: promotions and incentives. However, applying risk warnings to the content they create will surely serve as a positive on the whole, ensuring that any potential referrals know what they are getting into before they start investing.

Essentially, these regulations fundamentally change the definition and purpose of crypto. 

Cryptocurrency started as a decentralized alternative to established financial institutions, and these regulations definitely make cryptocurrency more centralized. So, it cannot be said that the regulations do not alter the characteristics of cryptocurrency, and the changes could lead to crypto having less appeal to investors. 

Why have these regulations been introduced? 

The implementation of these regulations follows an industry consultation that was set out by HM Treasury (HMT) and took place in February 2023. 

Based on an HMT response paper, the UK government wants to turn the UK into “a global hub for cryptoasset technologies”. To do this, crypto regulations have been introduced to make crypto exchanges better monitored and, ultimately, safer for investors. 

The UK government wants to crack down on questionable crypto deals. By doing this, they hope that investor confidence in crypto businesses will be restored. 

For context, confidence in crypto businesses has diminished in recent years due to events such as the bankruptcy of FTX. FTX was a Bahamas-based crypto exchange site that went bust in late 2022 after it was exposed for mishandling funds and having a lack of liquidity. They were declared bankrupt after a large wave of withdrawals left them with a $3.4 billion crypto liquidation. 

The HMT actually directly referenced the failure of FTX as the reasoning behind their consultation. They want to ensure that promotional crypto content is no longer misleading. 

When will these regulations come into effect? 

The crypto marketing regulations are already in effect. The government passed the FSMA 2023 in June. This updated act redefined the definition of cryptoassets. 

Following the passing, the crypto marketing regulations came into effect on the 8th of October 2023. 

What cryptoassets are included in these regulations? 

Stablecoins are the main type of cryptoassets that have been impacted by the new regulations. 

The following cryptoassets have not been affected: 

• NFTs 
• Central bank digital currencies (CBDCs)

The Impact on Crypto Users 

What does all of this mean for cryptocurrency investors in the UK? 

If you’re a UK-based crypto investor, you need to ensure that the cryptoasset exchange providers that you deal with are regulated by the FCA. If they’re not, they may become subject to penalties and be viewed negatively by the market. This could result in the value of the cryptoassets you invested in being compromised. 

The new regulations may alter what cryptocurrencies are available to UK investors. Several crypto exchange sites, including Bybit, proactively suspended their services to the UK ahead of the introduction of these new regulations. 

If the crypto provider is FCA-registered, you can invest in confidence. 

However, the way in which you invest in crypto assets is impacted by these regulations. Given that incentives are now banned, you’re unlikely to receive any refer-a-friend or sign-up bonuses from crypto exchanges or other crypto platforms. 

Will Other Countries Follow the UK’s Example? 

Other nations will likely follow in the UK’s footsteps in the coming years, although no other country currently has official regulations in place like the UK. 

In the US, bills related to the regulation of crypto assets are currently being put through Congress. However, the US government is currently a long way off from introducing formal regulations. 

EU regulations are slightly further ahead, having introduced the Markets in Crypto Assets (MiCA) regulation in 2023. This is a framework that outlines a proposed licensing process for cryptocurrency firms. This framework is set to be formally enforced in 2024. 

While there are no formal regulations in place now, the UK’s move could potentially instigate a global ripple effect. If the regulations are successful, other governments will likely introduce formal regulations sooner rather than later. 

The Bottom Line 

The UK’s new cryptocurrency regulations have already altered how crypto is bought, sold, and promoted. Crypto is now regulated in the UK just like other established investment types. While this makes cryptocurrency more centralized, it means that crypto exchanges are clearer and fairer. 

Other countries are likely to follow the UK’s lead and start regulating their respective cryptocurrency markets soon.