In the worldwide rush to embrace bitcoin, the UK is implementing measures that are inadvertently causing an exodus of crypto-related businesses. While the US moves forward with institutional adoption, allowing entities like BlackRock BLK to back bitcoin products, the UK’s stringent regulations stifle its own companies.
This situation represents a policy contradiction and has sparked widespread criticism, countering Prime Minister Rishi Sunak’s vision of making the UK a ‘crypto hub’.
As highlighted in a recent Financial Time article, “The hotly anticipated launch of a bitcoin ETF in the US leaves the UK out of step with some other major markets in maintaining its blockade on retail access to exchange-traded crypto funds.”
Many companies are already relocating to more crypto-friendly environments, highlighting the disparity between the UK’s restrictive stance and other major players’ progressive steps.
Background On The New Regulation
In October 2023, the UK’s Financial Conduct Authority implemented sweeping new regulations, categorizing bitcoin and other cryptocurrencies as ‘restricted mass market investments’.
As the FCA admitted, this was against the advice of most of the industry, which had warned that different assets had different risk profiles and should not all be lumped into the same bucket. New rules included implementing a cooling-off period and rigorous client appropriateness testing, with firms initially given a deadline of January 8, 2024, to comply.
The aim was to bring clarity and security to the market while protecting consumers from the inherent risks associated with these high-risk investments. This involved ensuring that firms’ marketing strategies are clear, fair, and not misleading. The results have been far less clear and in some cases actually appear to have increased and not reduced the harm to consumers, leading to criticism from industry experts and stakeholders.
Initially, firms were given a six-month window starting from the issuance of ‘near final’ legislation in May 2023, targeting an implementation date of October 8th. However, this deadline was effectively shortened by two months compared to the original December 8th deadline.
Concerns about the risks of hurried compliance measures potentially endangering customer funds were raised, and consequently the FCA extended the October 8th deadline to January 8th, with firms struggling to meet the evolving compliance requirements within a constrained timeframe.
Despite extending the deadline by three months, the FCA’s approach left many consumers and businesses in a difficult position, particularly with the regulation’s requirement that retail investors should not invest more than 10% of their net assets in high-risk investments like cryptoassets.
Industry Voices: The Impact
Jamie McNaught, CEO of Solidi, a UK-based FCA regulated exchange, gave details. McNaught pointed out the adverse effects of these regulations on consumers, highlighting that honest customers are now stuck with limited options.
In an exclusive interview, McNaught revealed,: “Customers either sell their crypto assets before the deadline, potentially incurring significant capital gains tax, or lie on their applications.’’
On Wednesday, 10 January 2024 the U.S. Securities and Exchange Commission approved a bitcoin spot ETF, allowing institutional players like BlackRock to offer products listed on stock exchanges directly backed one-to-one by bitcoin. In the very same week, the U.K. imposed stringent regulations that significantly restricted the purchase of bitcoin. This appears a particularly backward move just when the US, the leading market in the space, has taken such a progressive step forwards.
The FCA’s stringent regulations will impede both access and innovation. We’ve already seen a number of companies pulling out of the UK, or announcing that they’ll no longer serve UK customers, making a total mockery of the UK’s ambitions to become a ‘crypto hub’.
This is a stated policy of Prime Minister Rishi Sunak and has been reiterated by various Economic Secretaries to the Treasury; new startups are deterred from setting up in the UK due to these barriers, and many crypto companies are relocating to more crypto-friendly environments like the UAE or Switzerland. Retail investors face more barriers, and getting a business bank account for crypto-related activities has become nearly impossible.
Guy Turner, co-founder of The Coin Bureau, runs a well-known online platform with 2.4 million subscribers. This platform is highly regarded for delivering comprehensive educational content on bitcoin, cryptocurrencies, and financial news.
Initially established in the UK, Turner revealed in an exclusive for this Forbes article that the company relocated in 2022. The move was prompted by challenges in accessing banking services within the UK, “As a media entity, we neither issue, trade, nor sell any cryptocurrencies; our sole focus is discussing and reporting on the industry. Recognizing the shifting regulatory landscape in the UK, we made a strategic decision to move to a more crypto-friendly environment in Dubai,” he stated.
As Guy Turner correctly points out, “Investor protection should be taken seriously, and the high-risk nature of digital assets should be emphasized. But, telling people how much of their own money they can invest in an asset class amounts to overreach and is likely unenforceable anyway. And this is a country where anyone can walk into a bookies and lose their shirt in a matter of minutes, with no questions asked”.
Freddie New, Head of Policy at Bitcoin Policy U.K., said, “It’s extremely regrettable that, having consulted with industry experts in this highly complex and novel area, the FCA largely ignored the advice they received. I am fully supportive of regulation that has the effect of reducing customer harm. However, the FCA chose to disregard the detailed feedback from the industry at large, raising concerns. Now, there’s a risk that the U.K. will lose market share in a globally competitive arena. U.K. citizens might turn to unregulated firms to buy bitcoin and other less secure crypto assets, exposing them to greater risks than if the FCA had adopted a more nuanced approach.”.
The Fallout Of UK’s Crypto Regulations
The UK’s approach to crypto regulation, aimed at protecting investors and fostering a safe investment environment, has had unintended consequences. It has led to an increase in customer harm, characterized by the loss of banking facilities and diminished investment and employment opportunities. This strategy has imposed a short-sighted restriction on access to a potentially lucrative asset class, simultaneously driving away innovation.
