UK Trends and Developments Contributed by: James Burnie, Kathryn Dodds, Nicky Androsov and Olga Antonova, gunnercooke llp
tions 2017 (MLR 2017), specifically firms’ anti-money laundering framework, business model firm financials, policies and procedure, systems and controls, and generally the fitness and proprietary of key individuals at the firm. Firms that were previously registered with the FCA under the MLR 2017 will need to become authorised with the FCA under the new regime. Generally, the approach has been taken to align the new activities with those taken with equivalent existing activities (“same risk, same outcome”), however this has not always been an easy translation. For exam- ple, in the context of insider dealing (a kind of market abuse), the implicit assumption in traditional finance is that there is a centralised company with respect to which it is possible to obtain non-public information that is the basis for insider trading. A crypto-asset may be manipulated despite the lack of a centralised corporate entity, and as such the FCA has taken a pragmatic approach, consider for example that a per- son seeking to list a crypto-asset may consequently hold insider information despite not being the issuer of the token. It is also worth noting that, in practice, it is in some respects debateable whether the UK has in fact, adhered entirely to the “same risk, same outcome” approach. A particular issue here is the appointed representative regime. This regime is generally used by start-ups in the TradFi securities industry to get up and running in a cost-efficient manner, by effectively borrowing the licence of an already regulated entity, subject to agreement to fall within the supervision of that regulated entity. Whilst the appointed representa- tive regime has faced some criticism, for example in terms of whether start-ups have been appropriately supervised, the failure to extend the regime to unregu- lated crypto-asset companies effectively puts them at a disadvantage. This is because crypto-asset firms will need to incur the full direct cost of becoming FCA authorised, and in addition, those running such firms will not have the advantage of being able to get used to the obligations of running a regulated firm before going for direct authorisation. An interesting aspect of this will be the role of the start-up unit in the FCA, which is tasked with seeking to help start-ups get up-and-running, as part of a gen-
eral obligation on the FCA to encourage competition in the UK as a means of benefiting consumers. The effect of this is that the FCA is consciously seeking to help small firms set up in the UK, and how the FCA seeks to do this whilst also seeking to ensure that its rules are properly enforced to protect markets and consumers will be interesting to see. Another factor at play here will be the ingenuity of firms to be able to create “appointed representative- like” solutions to enable firms to access the UK. For example, it is clear that firms may not sell directly into the UK without a licence, however a firm may sell to an FCA authorised firm which in turn sells into the UK. The extent to which firms may blur the line here is yet to be determined, however given that in any event the distribution channel for the product will have to in any event pass through an FCA authorised firm and therefore need to be in accordance with UK regulatory requirements, there is cause for optimism. The international scene The FCA is not alone in seeking to develop its approach to the crypto-asset industry, and it is instructive to look at what is happening at the global level, and how the UK regime interacts. Generally, other regulators have also sought to take an alignment approach to regulating crypto-assets, and whilst superficially this may result in an element of natural alignment, that should not be taken for granted. For example, the UK’s approach to regulating the backing assets held with respect to a stablecoin is derived from invest- ments, and in particular there is a focus on ensuring that backing assets are held in only the most liquid and secure of investment types, such as bank deposits, and consequently there is a ban on holding electronic money as a backing asset. This is in direct contrast to the EU approach, which instead sees stablecoins as an evolution of electronic money, hence requiring firms to obtain an electronic money issuer licence in order to be able to operate. There is a broader issue at play here, in terms of the UK’s position in global markets. Whilst by leaving the EU, the UK lost certain passporting rights, other avenues are expanding. This is demonstrated by the range of memoranda of understanding entered into between the FCA and other regulators globally, which
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