UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Nicky Androsov and Olga Antonova, gunnercooke llp
gations in relation to prevention of money laundering/ terrorist financing, and well as ensuring that financial promotions comply with UK marketing rules and that front ends to sell crypto-assets are in compliance with UK rules (designed to increase customer friction and ensure that crypto-assets are only sold where appropriate). In terms of local personnel, currently the requirement is to have one MLRO, and there are no prudential requirements (however firms are expected to have clear planning to show how they will have continued solvency, as well as a credible wind-down plan). As the new regime comes into force, this will change as crypto-asset firms will be required to operate at a level commensurate with FCA authorised firms, for example with respect to compliance with conduct- of-business requirements as well as capital adequacy. 3.3 Change of Control Firms licensed by the FCA are required to obtain approval before a change of control. The exact thresh- old for obtaining this approval depends on whether the firm is performing FCA authorised or FCA registered activities, and the exact nature of those activities. For crypto-asset firms dealing in unregulated tokens, currently the threshold is 25% of the shares of voting power in the firm. The FCA has made it clear that acquiring a firm should be considered as a way of avoiding the level of due diligence that would be applied by the FCA when get- ting a direct authorisation. Potential new owners will therefore need to be able to clearly articulate their reg- ulatory business plan for the business, and expect to be subject to the same checks as the exiting owners before being able to buy an FCA regulated firm. 3.4 Passporting In the UK, there are currently various MoUs with other jurisdictions, which signal an intent by the UK FCA and other regulators globally to work together to facilitate the growth of firms operating on both jurisdictions. Two jurisdictions worthy of particular consideration are Gibraltar, which has entered into a passporting regime with the UK, as well as Switzerland, which
under the Berne Financial Services Agreement has an agreement for mutual recognition with the UK. These developments show the UK steadily repositioning itself post-Brexit and show the general pathways likely to be taken by UK firms for cost-effective international expansion.
4. Cross-Border Services 4.1 Marketing
There are restrictions that apply to selling in the UK (i) security tokens; and (ii) otherwise unregulated tokens that are fungible and transferrable. These, for exam- ple, require that any invitation or inducement to buy, sell or subscribe for or underwrite crypto-assets are approved by FCA authorised persons. Firms which are licenced by the FCA (including under the MLRs) are able to approve their own promotions. There are exemptions to the financial promotions restrictions, however for unregulated crypto-assets these are generally narrowly defined. There is no reverse solicitation exemption. Of the exemptions that can apply, the two most in use are those in rela- tion to investment professionals and high net worth companies (technically there is also an exemption for sophisticated investors, however in practice it is not a viable route). There is no exemption for high net worth individuals (which may be able to use an exemption for example in relation to certain security tokens). To use an exemption there are requirements to make cer- tain disclosures and obtain evidence that the exemp- tion is being used properly. Firms seeking to obtain approval to be able service the UK generally with respect to unregulated tokens that are fungible and transferrable, are subject to strict requirements, including cooling off periods, disclosure requirements, limitations on the amount of crypto- asset ownership, and appropriateness assessments. As the new rules come into force, they will also be required to obtain local FCA authorisation, and to comply with the UK’s requirements generally in rela- tion to their business. Crypto-assets, such as unregulated NFTs, that other- wise fall outside the financial promotion restrictions,
706 CHAMBERS.COM
Powered by FlippingBook