The New Crypto Asset Regulations In The UK and The EU Have A Very Different Approach!

Charlene Lensburg
Fri, 17 Nov 2023 09:13:59 +0000
Compliance, Crypto, ESMA, FCA, ticker, MiCa

Yes, the UK and the EU have implemented regulatory frameworks for cryptoassets. However, the two approaches of the UK and the EU are very different. The UK prescribes very precisely how crypto providers are allowed to deal with their customers and what they are not allowed to do. The EU, on the other hand, has implemented a comprehensive framework with MiCA with ESMA as the competent regulator.

The New UK Crypto Rules

The Financial Conduct Authority (FCA) has introduced new rules to regulate the promotion of crypto-assets in the UK. Companies that deal with security tokens must register with the FCA because they are considered “regulated tokens.”

The new rules require those marketing crypto-assets to UK consumers to introduce a cooling-off period for first-time investors from 8 October 2023. The cooling-off period means that if you are investing in crypto for the first time, you will have to wait a full day before your transaction is completed.

Under the new rules, crypto firms must ensure retail investors have the appropriate knowledge and experience to invest in crypto. Those promoting crypto must also put in place clear risk warnings and ensure adverts are clear, fair, and not misleading.

Therefore, UK clients of FCA-registered crypto firms are currently being asked to complete their investor profiles. In addition, clients must also pass a “crypto competence quiz” if they wish to trade cryptos.

Moreover, the UK recently adopted the Travel Rule requirement to its regulation of crypto asset service providers. The Travel Rule requires crypto companies to obtain information from the sender and receiver of crypto assets and share it with counterparty crypto asset service providers. The requirement came into force on September 1, 2023

Read the excellent Sumsub Guide on the UK crypto regulation here.

The EU MiCA Crypto Assets Regulation

In contrast, the European Union’s Markets in Crypto-Assets Regulation (MiCA) establishes uniform EU market rules for cryptoassets, especially those not currently regulated by existing financial services legislation. Key provisions of MiCA focus on transparency, disclosure, authorization, and supervision of transactions, supporting market integrity and financial stability.

MiCA was officially enacted in June 2023 and involves a substantial number of national measures that must be developed before the new regime is fully applied​​. The implementation involves a consultation process divided into three packages, focusing on different aspects like authorization, governance, conflict of interest, and complaint handling procedures. The packages are being released sequentially to incorporate public feedback and ensure a comprehensive framework is in place. This approach ensures a convergent application of rules across EU Member States​​.

During MiCA’s transitional phase, ESMA works with national authorities to ensure a convergent approach to authorizations of crypto-asset service providers (CASPs). Member States have the option to implement transitional measures that allow existing crypto-asset service providers to continue operating under national laws until they are either granted or refused a MiCA authorization. This mix of regimes aims to provide a consistent level of protection for consumers across Member States​​.

The New Era For Crypto Firms

For unregulated crypto companies, these regulations in both the UK and the EU represent significant shifts. In the UK, the focus on aligning cryptoasset activities with traditional finance and enhancing consumer protection means that unregulated firms will need to adapt to more stringent operational and disclosure standards.

Similarly, under MiCA, crypto companies operating in the EU will face a comprehensive set of rules aimed at ensuring market integrity and consumer protection. These firms will need to align with the new authorization, transparency, and supervisory frameworks to operate legally within the EU.

In summary, both the UK and the EU are taking significant steps towards regulating the crypto market, with a focus on consumer protection, market integrity, and aligning cryptoasset activities with traditional financial regulatory frameworks. For unregulated crypto companies, adapting to these new regulations will be crucial for legal operation and market participation in these regions.