UK Trends and Developments Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
overall direction of travel of UK regulation is determined. Various reviews have been commis - sioned to assess how best the UK should move forwards. This has included the high-profile Kalifa review, which sets out a series of recom - mendations to encourage the growth of the UK fintech sector. These recommendations include: • making the UK a more attractive location for initial public offerings by changing the UK listing rules; • attracting global talent by making improve - ments to tech visas; • building on the Financial Conduct Authority’s (FCA) concept of a sandbox to encourage innovation with the concept of “scalebox” designed to provide additional support to growth stage fintechs; and • strengthening co-ordination across the fin - tech sector with the development of a Centre for Finance, Innovation and Technology. These developments are of course to be wel - comed, however implementation has arguably been slow, and in each case it has involved tweaking an existing theme rather than a firm statement as to how the UK will position itself for the future. A blank slate: a misjudged start In this respect, seeing the UK’s approach to Web3, and in particular crypto-assets, has been particularly illuminating, as this has been a case of determining a completely new regula - tory framework rather than adapting an existing one. Furthermore, the challenges around regu - lating Web3 are notoriously difficult. Unlike many financial products, which start off being unavail - able to retail, and are then slowly opened up to the retail market as they mature and become understood, crypto-assets started as being fully open to retail. As such, seeking to regulate cryp -
to-assets is, to some extent, a question of trying to put the genie, back into the bottle. On top of this, the decentralised nature of the industry means that it is relatively easy for participants to jurisdiction shop by simply moving to a less regulated jurisdiction, meaning that it is harder to simply regulate firms based on location. Traditionally, the UK has been a leading global financial services hub, and obtaining a licence to operate in the UK has been perceived as a mark of quality. This approach was therefore taken in relation to crypto-assets, and as such in-scope firms were required to register with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). In-scope firms for the purposes of the MLRs are firms in the UK that act as either: • a crypto-asset exchange provider, being an entity that either: (a) exchanges, or arranges or makes arrangements with a view to exchange of, crypto-assets for money or vice versa, or one crypto-asset for another crypto- asset; or (b) operates a machine which uses auto - mated processes to exchange money for crypto-assets or vice versa (eg, an ATM); or • a custodian wallet provider, being an entity which provides custodian services for: (a) crypto-assets on behalf of customers; and/or (b) private cryptographic keys to hold, store and transfer crypto-assets. The registration process in the UK has been onerous for firms, with a high failure rate for those seeking to register. Arguably, the position
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