UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
ing staking as a separately regulated activity will encourage sensible and particular regulation of the activity in order to promote the UK as a hub for staking providers. 10.7 Crypto-Related Lending Lending activities in relation to unregulated cryp - to-assets are not regulated, as they do not meet the definition of being a regulated “credit agree- ment” . However, this is likely to change over the next year as the FCA has indicated that a regula - tory regime for lending in crypto-assets will be implemented. 10.8 Cryptocurrency Derivatives Cryptocurrency derivates are regulated in the United Kingdom, falling within the general secu - rities framework. As such, there are subject to the usual requirements to obtain FCA authori - sation when performing regulated activities in relation to them, as well as the overall financial promotions restrictions. Furthermore, the sale of derivates in relation to certain crypto-assets, in particular unregulated crypto-assets such as bitcoin, are banned to the UK retail market, being considered too high risk. 10.9 Decentralised Finance (DeFi) There is no specific regulation of DeFi in the United Kingdom. However, “making arrange- ments with a view to” the exchange of one crypto-asset for another (or for fiat) is a regu - lated activity under the MLRs that is given a wide interpretation, and as such it is likely that operat - ing a DeFi protocol would trigger a requirement to become FCA registered under the MLRs. This is, however, tricky conceptually given that the core of DeFi is that there is no centralised entity, and therefore no entity to register with the FCA. As such, there is generally no substantive DeFi offering provided from a UK-based company
(however there are many UK companies that provide the intellectual property to offshore DeFi protocols). A further point to consider are the restrictions on financial promotion of investment activity in certain crypto-assets into the UK. These apply to whoever is making the promotion into the United Kingdom to either limit communications to those that fall within an exemption to the restriction, or require the financial promotion to be signed off by an FCA authorised firm. Getting signed off is a relatively high bar to selling into the UK, because the FCA authorised firm takes some degree of responsibility in relation to the offer - ing as a whole, and this option can be expensive. As such, it is more common to rely on exemp - tions, however this does limit the persons who can be communicated to severely, in particular the most commonly used exemptions are those which enable fund managers and corporates with assets over GBP5 million to receive com - munications. 10.10Regulation of Funds Funds that invest in blockchain assets are regu - lated the same way as funds generally. However, it should be noted that currently crypto-assets are not an eligible investment for retail funds, and as such crypto funds are generally restricted to professional investors. It should also be noted that, whilst the regulation of crypto funds is not distinct from funds generally, existing service providers may not feel competent to operate with crypto funds. Growth of new service provid - ers specifically targeting the crypto funds indus - try is being seen to fill this gap in the market. 10.11Virtual Currencies There is no specific regulation of virtual curren - cies other than that as set out above in 10.3 Classification of Blockchain Assets .
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