Evolving Crypto Standards: Regulatory Shifts in EU and UK
With the rapid proliferation of crypto assets, global regulatory bodies face the challenge of determining their future trajectory. After discussions centered around the dominance of the US dollar and possible shifts in financial power dynamics, we now focus on the crypto regulatory landscapes in the EU and the UK.
European Union’s Approach to Crypto Regulation
In June, the European Union took a significant step in finance and technology by rolling out the Markets in Crypto Assets (MiCA) regulation. MiCA’s objectives are to enhance consumer and investor protection, preserve financial stability, and promote the innovative application of crypto-assets within the EU.
Focus on Stablecoins
Under MiCA’s framework for crypto-asset categorization, there are three primary types of crypto assets. First, there are Utility Tokens, which grant users access to a specific product or service provided by the issuer. Next, Asset-referenced Tokens (ARTs) are crafted with the intention of stabilizing their value by referencing particular assets or currencies. Lastly, E-Money Tokens (EMTs) are tokens specifically designed to tether their value to a singular official currency.
Although MiCA doesn’t explicitly use the term ‘stablecoin,’ it’s generally considered the classifications suggest stablecoins are categorized under ART and EMT. Stablecoins pegged to fiat currencies fall under the EMT category, while the rest are classified as ARTs. MiCA underlines the reliability of stablecoins for investors. To ensure this, stablecoin issuers must have reserves reflecting their financial obligations. Moreover, ART providers must have a registered office within the EU, ensuring their tokens are majorly associated with European denominations.
Transparency Through Whitepapers
MiCA mandates every crypto-asset issuer to produce a comprehensive white paper for prospective investors. This white paper, presented before any public offering, should cover the issuer’s background, a detailed plan for using the raised funds, investor rights, and other relevant information. Also, ART whitepapers require approval from national authorities before being shared.
Impacts on the Industry
In July, the European Securities and Markets Authority (ESMA) released detailed guidelines on how crypto companies within the EU should be authorized, emphasizing areas like user complaints and conflicts of interest. The European Banking Authority (EBA), the ESMA’s counterpart for securities, has also urged stablecoin issuers to prepare for MiCA rules. Although the official enforcement date is June 2024, the EBA highlights the importance of early adoption to ensure consumer protection and smooth business transition.
Recent Crypto Legislative Changes in the UK
While the European Union has been proactive with its MiCA regulations, the UK has been carving its path in the crypto regulatory space.
The Financial Conduct Authority (FCA), under the guidance of the UK government, has rolled out a succession of crypto regulatory amendments. These adjustments aim not only to protect investors but also to bring consistency to the burgeoning crypto sector.
The Travel Rule
Starting 1st September, UK crypto businesses began adhering to the Travel Rule, an initiative endorsed by multiple nations to combat illicit digital asset activities such as money laundering and terrorist financing. The Travel Rule mandates crypto firms to collect and share specific transactional details concerning the origin of funds and their recipients, mirroring practices already in place for traditional money transfers.
Regulatory Changes for Marketing Crypto Assets
The FCA implemented several key changes in October 2023. Firms marketing crypto assets to UK consumers now provide a 24-hour “cooling-off period” for newcomers, mitigating impulsive investment behaviors. Additionally, the popular ‘refer a friend’ bonuses have been banned, ensuring that rookie investors aren’t enticed without a comprehensive understanding of the potential risks. In addition, advertising content for crypto assets should maintain clarity, neutrality, and be free from misleading elements. Enhancing this is the UK Advertising Standards Agency (ASA), which will intensify its oversight of crypto promotions to ensure accurate representation of risks and benefits.
Impacts on the Industry
Recently, the FCA has augmented its warning list of unauthorized entities that customers “should avoid” to over one hundred entities. In the UK, companies permitted to engage in crypto asset activities must either be registered with the FCA or have obtained temporary operational status. Amidst these transitions, Komainu, a venture concentrating on crypto custody, managed to secure FCA registration just before the enactment of the advertising regulations.
Major crypto firms such as Binance and MoonPay are adapting to the UK’s new promotional guidelines. Others, like Coinbase, have restructured their services, highlighting risk disclaimers. In contrast, some, such as PayPal and Bybit, have either temporarily ceased or entirely suspended their operations in the UK due to the evolving regulatory scenario.
Closing Thoughts
As we have seen, both the European Union and the UK are taking proactive and considered steps towards shaping the future of the crypto landscape, balancing innovation with investor protection. Across the globe, regulatory bodies are increasingly active in navigating this dynamic terrain, underlining the importance of close collaboration between the crypto industry and governmental entities. This global focus also underscores the government’s recognition of the transformative potential of digital assets. Amidst the transformation, we can anticipate a future digital financial ecosystem that is robust, transparent, and inclusive.
About GMO-Z.com Trust Company
Building Financial-Grade Digital Assets. The World’s First Regulated JPY-Pegged Stablecoin Issuer. Visit our website to learn more.
Disclaimer
This content is not financial advice, and it is not a recommendation to buy or sell any financial instruments, FX trading, cryptocurrency, or engage in any trading or other activities. You must not rely on this content for any financial decisions. Acquiring, trading, and otherwise transacting with financial instruments or cryptocurrency involves significant risks.
We strongly advise our readers to conduct their own independent research before engaging in any such activities. GMO Trust does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in their country.
