UK's FCA Introduces New Regulations, Causes 'Positive Frictions' Among Crypto Users
Summary:
The UK's Financial Conduct Authority (FCA) has implemented new legislation introducing "positive frictions" to counteract the urge to invest in the financial promotions sector. Users must disclose whether they're high-net-worth or restricted investors and take competency tests, complicating the trading process for seasoned cryptocurrency users. Some platforms have even suspended services as a result. While the move aims to prevent reckless investing, it complicates Prime Minister Rishi Sunak's ambition to make the UK a hub for digital assets. The reaction has been mixed, with many users expressing frustration at the unexpected restrictions.
New rules set forth by the U.K.'s Financial Conduct Authority (FCA) are generating what is referred to as "positive frictions" among domestic users, as part of new financial promotional legislation. The FCA describes these "positive frictions" as methods to counteract the societal and emotional urge to invest. As a result, consumers are now required to disclose if they are high-net-worth or restricted investors and subsequently complete a set of questions aimed at proving their investment competence. The regulation has made it challenging for established cryptocurrency traders to carry on with their transactions, regardless of their wealth of experience. This has led to some platforms, such as Luno and PayPal, to suspend services due to FCA regulations, with Luno completely discontinuing service to U.K. customers and PayPal discontinuing its digital currency purchase functionality. Coinbase is an example of companies that are now questioning their clientele on their intentions and understanding of the cryptocurrency industry and associated markets.
Amid these developments, the U.K. Prime Minister, Rishi Sunak expressed his aspiration for the country to be a central hub for digital assets, a goal that may be complicated by the FCA's financial promotional regulations.
Discussing this issue with Cointelegraph, Lisa Cameron, a Member of the U.K. House of Commons and leader of the Crypto and Digital Assets All-Party Parliamentary Group (APPG), provided some insights. In June 2023, the APPG released a report emphasizing the necessity for clear avenues for legitimate companies to thrive and expand in the U.K. Cameron reiterated these points to Cointelegraph.
She also acknowledged that the enforcement of the new regulations has caused some problems. The new financial promotion structure has presented challenges for certain cryptocurrency and digital firms, with recent reports of some platforms suspending cryptocurrency purchases as they adapt. Consumer safety remains a top priority, but the government and regulators also need to avoid unintentionally pushing away legitimate and regulated providers seeking to invest in the U.K., said Cameron.
How the digital asset community reacted to the FCA's moves, after deciding to categorize all crypto-assets as "restricted mass market investments" on June 8, despite CryptoUK's warning against such a categorization, has been met with criticism. The amendment, initially scheduled for October 8, was deferred an extra three months to provide businesses with additional time to abide by the rules.
Many U.K. citizens were caught off guard by the modifications, and after the January cut-off, when customers of various platforms were bombarded with questionnaires or even competency tests to use their own assets, many quickly grew frustrated with the new rules and restrictions. Some traders were even barred from transacting.
The FCA now categorizes investments into three tiers - readably realizable securities (equities and bonds), restricted mass market investments which include crypto, and non-mass market investments prohibited for retail investors.
In January 2024, the U.K. Treasury's economic secretary, Bim Afolami, indicated that the government is focused on encouraging the youth to invest in the traditional stock market, instead of just owning digital currencies. CryptoUK has shared the concerns of its members with regard to the FCA's consultation last year.
It remains to be seen if the FCA's stance will be revised based on CryptoUK’s feedback.
Published At
2/12/2024 4:59:00 PM
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