UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
Furthermore, any invitation or inducement to invest in some crypto-assets (a “financial pro - motion” ) is subject to the “General Prohibition” set out in Section 21 of the FSMA, meaning that such activity must either be approved by an FCA authorised firm with the requisite competence to do so, or fall within an exemption. Generally, this is most relevant to consider for: • security tokens; and • unregulated tokens that are fungible and transferrable – and the exemptions are slightly broader for security tokens. It is worth noting that a firm registered with the FCA for its crypto-asset business will fall within an exemption and therefore is able to approve its own financial promotions. It is also worth noting that the requirements of the financial promotions rules are onerous – for example they incorporate the need for an appropriate - ness assessment and a 24-hour cooling-off period for first-time buyers. Firms complying with this regime need to dedicate appropriate resources to complying with it. Moving forwards, so-called “unregulated” tokens will in fact become increasing regulated, and the new legislation is likely to be highly influenced by the existing securities regime, which may well narrow the difference between unregulated tokens and security tokens. 10.4 Regulation of “Issuers” of Blockchain Assets This “issuer” of a blockchain asset is not regu - lated per se, however, issuance is generally often linked to a sale, in which case that activity is subject to the potential requirement to: • register with the FCA under the MLRs; and • comply with the financial promotion restric - tions outlined above.
In the future, as assets are listed on an exchange, even if the asset is considered an “unregulated” crypto-asset, disclosure and market abuse rules will likely apply. 10.5 Regulation of Blockchain Asset Trading Platforms If trading of blockchain assets is conducted by a UK business, this is likely to trigger the require - ment to register with the FCA under the MLRs. It is worth noting that the focus of this regime is on preventing money laundering, and it is going to be replaced in the near future with a broader regime that will also set out obligations in respect of matters such as conduct of busi - ness requirements and stopping market abuse and manipulation. For crypto-assets which are not NTFs, such firms will also likely need to comply with the financial promotion restrictions outlined in 10.3 Classification of Blockchain Assets . 10.6 Staking Staking is not per-se regulated in the United Kingdom, however care does need to be taken to determine whether a particular set-up would constitute “collective investment scheme” (ie, a fund). A particular issue in this respect has been for example in relation to staking models that pool crypto-assets, or where (for example in the context of delegated or liquid staking) a particular entity is responsible for optimising the smart contracts that perform staking, in order to improve yield. There is a move in the UK to narrow the defini - tion of a collective investment scheme, such that staking falls outside of scope of the definition, and instead to have a specific regime in place in relation to staking, that deals with the specific nuances of that activity. It is hoped that hav -
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