Conventional wisdom may have it that the United Kingdom is a minnow in comparison to other global markets such as China and the United States. However, when it comes to cryptocurrency regulation, the rules are far from set, and the UK has several overlooked advantages that it would do well to capitalize on.
London: A Global Financial Hub
As one of the world’s leading financial hubs, London plays a significant role in shaping global regulatory standards. Its influence extends beyond EU borders, making compliance with UK financial promotion rules mandatory for any country that sells fungible, transferable tokens to customers within its territory. This is regardless of whether the sale takes place through Europe or not.
UK Regulatory Supremacy
The UK’s regulatory framework is notable for its strictness and far-reaching consequences. Breaching UK regulations can result in up to two years’ imprisonment and an unlimited fine. The Financial Conduct Authority (FCA) has recently issued guidance that warns firms providing on/off-ramp services to crypto companies engaging in illicit activities could be committing offenses or facilitating them. Firms that fail to comply with FCA rules risk losing their banking and payment rails.
Marketing materials promoting investment activity in a token must adhere to the UK Financial Promotions regime. The growing interest from the FCA in enforcing compliance with these regulations is evident, highlighting the importance of adhering to UK regulatory standards.
Growing Regulatory Clarity
As regulatory clarity increases, it’s essential for cryptocurrency companies to adopt a risk-based approach when entering new markets and partnering with ethical third parties to scale their ventures. For companies seeking to expand into the EU, the Markets in Crypto-Assets (MiCA) regulation presents several challenges and opportunities that can be navigated from a stronger position than many assume.
Although MiCA is touted as a single regime, experience shows that different EU countries will strive to establish themselves as the preferred jurisdiction. In practice, only a few are likely to emerge victorious. The varying approaches of EU member states, such as tax levels and infrastructure accessibility, provide non-EU companies with options to choose the most favorable jurisdiction.
Divergence Among EU Member States
The level of taxes imposed on crypto firms and ease of interaction with existing infrastructure differ significantly among EU countries. Some nations offer more flexibility in leveraging pre-existing licenses, reducing costs associated with market entry. The requirements for substance, such as local directors and banking support, also vary.
Non-EU companies can take advantage of these differences by selecting the most suitable jurisdiction. However, this decision requires careful consideration, as advisers in each region will promote their services. Cost savings can be substantial, with some companies using strategic solutions to reduce EU access costs by up to 90%.
The Cost of Compliance
While compliance with MiCA regulations can be minimized, companies are attracted to the UK due to its extensive network of legal and financial services, world-class universities, and regulatory influence. Web3 natives may view the UK as less market-leading due to its use of English law for international business deals; however, regulators often look to the UK when drafting their frameworks.
It’s worth noting that the outcome of the European Securities and Markets Authority’s guidance on reverse solicitation provided under MiCA is similar to the UK financial promotion rules. Collaboration among regulators to establish common global standards is also observed.
A UK-First Approach
Companies prioritizing a UK-first approach benefit from an internationally recognized, robust legal framework that sets out requirements for regulating crypto asset businesses. Businesses and investors would do well to consider these often-overlooked regulatory advantages when planning for the future.
By capitalizing on its strengths in cryptocurrency regulation, the UK can solidify its position as a leading market for crypto companies. Pavan Kaur, partner at Gunnercooke, emphasizes the importance of considering these advantages when making strategic decisions about your business.
Conclusion
The United Kingdom’s regulatory framework offers several benefits that are often overlooked by companies operating in the cryptocurrency space. By understanding and leveraging these strengths, businesses can navigate complex regulatory landscapes more effectively. As global standards for crypto regulation continue to evolve, the UK’s position as a leader in this field is set to remain strong.
About the Author
Pavan Kaur is a partner at Gunnercooke, serving as a fractional chief marketing officer to crypto companies. Pavan is also a GTM strategy expert for Outlier Ventures’ accelerator programs.
This article is for general information purposes and should not be taken as legal or investment advice. The views expressed are the author’s alone and do not necessarily reflect those of Cointelegraph.
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