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Compliancy Services have been a trusted partner throughout our FCA application process

Juan Colón

TradeSlide Trading Tech

Sector Focus: Cryptocurrency

The emerging market around Cryptocurrency and DLT is increasingly on the horizon of both global politicians and regulators alike. There are questions surrounding how and what cryptocurrency should be regulated, and given the virtual, international and cross border nature of cryptocurrency this area is complex. Compliancy Services understand the regulations and have experience in cryptocurrency, with a number of leading clients in the sector.

Many cryptocurrency firms actively want to be regulated, because of the associated market kudos and the need to drive out the less reputable operators in the market. As a result, industry groups are pressing for regulation to be introduced. In the UK, the Governor of the Bank of England has said that regulation is coming and market participants wait to see what that might be.

What regulation is in place now?

Currently, there are a number of firms operating in the cryptocurrency space that are regulated by the FCA, because their wider business activities include activities which require FCA authorisation under UK law:

  • Firms offering trading in cryptocurrency derivatives are regulated under the investment rules
  • Some cryptocurrency firms are regulated under the e-money regulations.  E-money is defined as a monetary value (in a fiat currency), as represented by a claim on the issuer, which is:
  • Stored on an electronic device
  • Issued on receipt of funds
  • Accepted as a means of payment by persons other than the issuer and used for the purposes of making payment transactions 

Therefore, the E-money authorisation will only relate to the fiat currency elements of a cryptocurrency firm’s operations. For example, a firm could issue E-money as a Sterling equivalent of the crypto currency held, if the value was set using a service such as Tether.

Where we are going, what do we know?

Cryptocurrency firms are being brought into the scope of the Money Laundering Directive under what is known as the Fifth Money Laundering Directive (5MLD). It is likely this will be implemented in the UK in early 2019.  

Firms affected will need to implement a “Financial Crime Risk Framework” including an annual risk assessment, annual independent audit, and a range of other controls, policies and procedures, all aimed at preventing money laundering.

Where we are going, what might happen?

It seems highly likely that cryptocurrencies will be further regulated in the UK within the next year or two. The easiest step for HMT to take might simply be to make cryptocurrencies a regulated investment instrument and the existing rules would be applied. This would have a huge impact on current market participants in transitioning to become regulated businesses. 

Alternatively, the scope of the Payment Services Directive and E-Money Directive could be extended to include cryptocurrencies so that making transfers in these currencies would require authorisation as a Payment Institution or E-money Institution. 

If either, or both, of these steps are taken, firms will require to become authorised by the deadline set. The nature of the applications, the information required to be provided and the ramifications of moving into the regulated space, all mean that early, informed guidance and assistance will be needed by firms to enable them to gain the necessary authorisation.

Enquire About Our Compliance Consultancy Services

Compliancy Services will be issuing further information when the situation becomes clearer, but if you would like to discuss the possibilities and/or how this might affect your business, please provide your contact details using the form below and a member of our team will get in touch. Or alternatively call us on 020 7060 4499

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