UK Trends and Developments Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
taken by the UK under the MLRs was somewhat misjudged, as firms generally did not seek to become registered, but simply moved to other offshore jurisdictions and sold into the UK from abroad, outside the territorial scope of the MLRs. A driving force here was the fact that many cryp - to-asset firms have limited budget, and a failed registration for a business is an expense with - out a corresponding benefit. It was also relatively unclear to what extent getting a UK registration under the MLRs brought real tangible value to a firm, given that it was quicker and cheaper to simply deal with the same target market on a cross-border basis over the internet. A blank slate: getting serious Given the outcome, the UK has been faced with two potential routes: either to forge ahead with further regulation or to back-track and seek to reduce the regulation of crypto-asset firms. Of the two options, the approach seems to be threefold. Firstly, there is a push towards greater regulation of in-scope activities. This seems to be on the basis that the issue with the MLRs was not too much regulation, but rather the fact that there was a lack of clarity regarding expectations for in-scope firms. As such, the view was taken that further regulation setting out clear expectations would give firms the confidence to come into the United Kingdom. In this respect, the FCA has provided a roadmap of their proposed approach to bringing in regulation of in-scope crypto-asset activities, with a view to helping the industry pre - pare. Secondly, steps have been taken to reduce the attractiveness of operating outside of the UK regulatory framework. In this respect a key development has been the extension of the scope of the so-called “general prohibition” ,
set out in Section 21 of the Financial Services and Markets Act 2000, to include unregulated crypto-assets that are fungible and transferrable (noting that securities tokens are already gener - ally in-scope). The impact of this has been to prohibit an invitation or inducement to engage in investment activity (a “financial promotion” ) in relation to in-scope crypto-assets unless: • such financial promotion has been approved by an FCA authorised firm with the compe - tence to sign off the financial promotion; or • the financial promotion is made in accord - ance with one or more of the clearly defined exemptions from the general prohibition. The exemptions to the restriction on in-scope unregulated tokens are narrow, and the two most used are those in relation to fund man- agers and corporates of a certain size. Thirdly, a more innovative approach has been suggested towards enforcement of the UK’s requirements. Breach of the general prohibi - tion is a criminal offence in the UK, and the FCA has flagged that banks and payment service providers that support firms in breach are han - dling the proceeds of crime, which in itself is a criminal offence if the appropriate steps are not taken. The consequence of this is that, even if a crypto-asset firm locates outside of the UK, in an attempt to make it practically harder to take action against the project directly, the banking providers will cease to support the firm in breach, meaning that practically it cannot operate. Given the above, it will be interesting to see how the UK develops. In this respect, it is worth noting that UK regulation does not exist in a vacuum. Indeed, most major onshore jurisdic - tions, such as the EU and the USA, have imple - mented or are implementing increasingly oner - ous regimes for crypto-asset companies. From a
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