UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
In relation to crypto-assets, whilst the rules do not yet exist, the direction of regulatory travel is that they should be formulated in the next year. 6.6 Rise of Peer-to-Peer Trading Platforms Peer-to-peer trading platforms are common in the United Kingdom, and are generally regulated (as they will involve an activity such as “making arrangements with a view to” regulated transac - tion). The regulatory challenge has been to ensure that such platforms treat customers fairly, and for example do not hold themselves out as having done more due diligence on the products they make available than is actually the case. 6.7 Rules of Payment for Order Flow In relation to securities, whilst not necessarily prohibited outright per se, the FCA considers that payment for order flow is generally incom - patible with the FCA’s rules on conflicts of inter - est and inducements, and risks compromising firms’ compliance with best execution. As such, the general position is that this is effectively not permitted in the UK. There is no prohibition in relation to exchanges for unregulated crypto-assets, however this may change in the future as new requirements are coming into force in relation to crypto-asset exchanges generally. 6.8 Market Integrity Principles The UK position on market abuse and market integrity in relation to securities generally follows a similar position to that in the EU, as the Market Abuse Regulation has been onshored to the UK post-Brexit. Preventing, detecting and punishing market abuse is a high priority for the FCA.
The FCA has powers and responsibilities for preventing and detecting market abuse, includ - ing insider dealing, unlawful disclosure, market manipulation and attempted manipulation civil offences. Furthermore, insider dealing and mar - ket manipulation are also criminal offences. Currently, unregulated crypto-assets fall outside of the UK market abuse and market integrity rules, however this is going to change in the near future as new requirements are being consid - ered in relation to crypto-asset exchanges. It is worth noting that offences such as fraud exist independently of the market abuse rules, and firms should in any event be careful as behaviour which may technically fall outside of the market abuse rules on the basis that the assets are not securities may still be considered illegal. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations There is no specific regulation of high frequency and algorithmic trading technologies, however they cannot be used in a way which breaches the more general requirements that all firms are subject to – for example in relation to securities, they need to comply with the rules on market abuse and market manipulation. 7.2 Requirement to Be Licensed or Otherwise Register as Market Makers When Functioning in a Principal Capacity Dealing as principal is a regulated activity in the UK requiring FCA authorisation, and such firms need to comply with the FCA’s requirements generally. An area of particular note here is as regards capital requirements. Firms which deal as principal have a permanent minimum capital requirement of GBP750,000. This reflects the
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