Changes proposed to the UK’s cryptocurrency bill by the Financial Conduct Authority (FCA) and the Treasury will tighten their grip over the crypto industry. Financial regulators are seeking to monitor digital asset service providers operating in the country more closely.
The collapse of FTX has influenced the UK Treasury to make amendments to its upcoming Financial Services and Markets Bill which includes regulations for the crypto industry. The proposed bill will now give the Financial Conduct Authority (FCA), the country’s financial watchdog, more power to regulate digital assets and services.
The Treasury’s updated guidelines will require crypto companies and token issuers to register with the FCA and also pass its anti-money laundering (AML) tests in order to be approved for operations in the country. According to reports, the FCA’s registration process is considered one of the toughest as 85% of the applicants do not pass the tests.
Earlier this year, the financial regulator began looking into money-laundering operations conducted by crypto companies in the country. The FCA noticed that investors were attracted by these companies mostly through advertisement campaigns, which helps instill trust.
As an example, In 2021, FTX bought naming rights to the playing arena of NBA team Miami Heats in a $135 million per year deal. Last month, the cryptocurrency exchange announced bankruptcy following the mismanagement of $10 billion worth of customer assets, which led to Miami Heats terminating their contract with the company.
On Tuesday, the FCA published a consultation paper which proposed limiting the number of crypto companies that will be allowed to approve marketing communications in the UK. Companies registered under the Financial Services and Markets Act 2000 will now be required to pass an additional level of authorization from the FCA to run promotional campaigns. The financial watchdog believes this will allow them to monitor the firms more closely.
“Historically we have seen many non-compliant promotions being approved and then communicated by unauthorized firms to retail consumers,” said the FCA in its consultation paper.
The regulator is looking into whether crypto companies that want to be approved for promotions should be checked for having adequate systems, controls and processes in place to do so, and whether they are able to maintain records of the financial promotions they want to conduct. In doing so, the FCA wants to assess the viability of the financial products being promoted.
According to terms of a proposal that was passed by the Bill Committee at the House of Commons last month, crypto companies and token issuers set to be registered under the Financial Services and Markets Bill will require their ads to be approved by an FCA-authorized firm. The FCA says that the number of authorized firms competent and experienced enough to approve crypto advertisements will be limited at first, but is expected to increase over time. This could result in a bottleneck for companies that are now looking to promote their crypto products in the country. If the Financial Services and Markets Bill that is currently in Parliament becomes law, crypto companies will be subject to the proposed regulatory changes.
The FCA paper is open for a two-month consultation period during which interested parties can review and respond to the proposal. The Treasury is also expected to publish its consultation paper in the coming weeks that will propose guidelines on how it plans to regulate the crypto industry. With pro-crypto Prime Minister Rishi Sunak leading charge, the UK aims to become a global hub for crypto.