UNITED KINGDOM Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Nicky Androsov, gunnercooke llp
financing, meaning there is a lack of clarity regarding the expectations in relation to the FCA’s oversight. It is therefore helpful that towards the end of next year the MLRs regime for crypto-assets is expected to be superseded by a more traditional approach to requir - ing authorisation under FSMA. For other business, generally, the Financial Conduct Authority’s expectations are as set out in the FCA’s Handbook of Rules and Guidance. That being said, there are still some specific regimes, the most notable of which are the Payment Services Regulations 2017 and the Electronic Money Regulations 2011, which generally set out the rules for firms in the payment services industry. 2.3 Compensation Models Compensation models and associated disclosures are highly specific to the nature of the activity in question; however, in broad terms, there is a focus on avoiding any compensation which is likely to cause a conflict with the interests of the consumer, which is a shift from previous thinking, which was more along the lines of disclosure obligations. Firms that provide services in relation to securities are generally subject to the most onerous obligations; for example, financial advisers are not permitted to receive payments which may impact their advice. A recent focus has also been on inducements to invest, and it is notable that the FCA has prohibited these when selling in-scope crypto-assets (ie, fungible and transferable unregulated crypto-assets) to the general UK retail public. 2.4 Variations Between the Regulation of Fintech and Legacy Players Generally, there is no distinction drawn between fin - tech industry participants and legacy players, with a view to keeping a level playing field. However, there is a recognition that new technologies may achieve the same (or better) outcomes for con - sumers through approaches not originally anticipated by the existing rules. Where this is the case, the gen - eral approach has been “same risk, same regulatory outcome”. In addition, the UK has pioneered the use of sandboxes, which enable interaction between the
regulator and fintechs to assess how best to oversee new technologies. 2.5 Regulatory Sandbox The UK has a range of sandboxes, run by different regulators. These include the original sandbox, oper - ated by the FCA, which allows firms with a genuine innovation with a UK nexus to conduct a test under its oversight. The PRA and Bank of England also run sandboxes, and again these are generally chances for firms to be able to interact with these regulators to test new concepts which may be of relevance to them. The use of a sandbox should be seen as a chance to explore a concept with a regulator – it is not a means to avoid regulation. Once a sandbox is success - ful, firms are still expected to obtain all the relevant authorisations and registrations that may be consid - ered pertinent to the running of their business. 2.6 Jurisdiction of Regulators For financial services firms, the primary regulator is the FCA, which is responsible for both the conduct of business and prudential running of these businesses. However, certain businesses (in particular banks, building societies, credit unions, insurers and major investment firms) are also regulated by the PRA, alongside the FCA. The general theme of these busi - nesses is that they may pose a systemic risk to the UK financial services sector, so the PRA has a particular focus on matters such as the solvency of such insti - tutions and mitigating the impact of any wind-down. Another regulator that UK businesses generally have to deal with is the Information Commissioner’s Office, which is responsible for ensuring that businesses comply with their obligations with respect to process - ing personal data. Firms may also have to comply with the requirements of the Advertising Standards Authority (ASA) if market - ing in the United Kingdom; however, if they are regu - lated by the FCA/PRA, that tends to be more onerous than, and supersede, the requirements of the ASA.
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