Bybit halts operations in the United Kingdom (UK): the impact of new crypto regulation
Crypto exchange Bybit has announced that it will suspend its operations in the United Kingdom (UK) starting next month due to new regulation in the blockchain area.
Specifically, this decision was prompted by the enactment on 8 October of new marketing regulations that require companies to register with the FCA (Financial Conduct Authority). Currently, in fact, Bybit does not appear on the FCA‘s cryptographic registry. Let’s look at all the details below.
New crypto regulation puts an end to Bybit’s activities in the UK
As anticipated, exchange Bybit has announced that it will suspend its operations in the UK next month, a decision that comes just a week after it said it was exploring all possible options to remain active in the country.
Starting 1 October, new customers will no longer be able to open new accounts. Thereafter, starting 8 October, existing clients will not be allowed to deposit new funds, create new contracts or increase their positions.
However, they will be able to close and reduce their positions as well as withdraw funds from the platform, Bybit indicated in a statement posted on its website.
The 8 October date is of particular importance, as it coincides with the entry into force of the UK’s advertising and promotion rules, which require crypto firms to be registered with the Financial Conduct Authority (FCA) in order to publish advertisements and communications.
However, Bybit is not currently on the FCA’s crypto registry. Specifically, the company stated the following on the matter:
“In light of the UK Financial Conduct Authority’s introduction of new rules relating to marketing and communications by crypto businesses, as outlined in the June 2023 Policy Statement (PS23/6) entitled ‘Financial Promotion Rules for crypto assets,” Bybit has made the choice to proactively embrace regulation and pause our services in this market.”
The FCA’s crypto advertising regulations: risk warnings and incentive bans
As anticipated above, the UK’s Financial Conduct Authority (FCA) has for the past few months been preparing to introduce strict regulations for advertising in the cryptocurrency sector once new planned laws are finalized.
Under the new regulations, cryptocurrencies will be classified as “limited mass market investments.” This classification will require that any form of advertising or promotion include “clear risk warnings” and prohibit investment incentives, such as “invite a friend” or “new member bonuses,” as stated by the regulator.
The inclusion of cryptocurrencies as part of the UK’s regulated financial activities is part of the Financial Services and Markets Bill, which is the country’s post-Brexit financial strategy and is currently being debated in Parliament.
Hence, with the passage of this bill, the FCA gains the power to establish regulations for the sector in accordance with existing laws.
Despite the opposition expressed by respondents during the FCA’s consultation on the topic last year, including the classification of cryptocurrencies as high-risk investments and a ban on non-real-time promotion offers (DOFPs) for new investors, the regulator will still proceed with these measures, the report noted.
In addition, alongside the new regulations, the FCA has opened new guidelines for public comment with the goal of ensuring that “firms clearly understand the implications of this requirement for crypto asset promotions,” as described in the document.
Clarity and transparency required under threat of UK sanctions
We also see that the proposed guidance emphasizes the importance for crypto companies to conduct thorough due diligence and provide sufficient evidence on the underlying cryptographic asset to ensure that financial promotions are balanced, clear and free from deception.
For companies promoting stablecoins, misleading statements regarding stability or links to fiat currencies are also required to be avoided, and additional measures are established to ensure transparency.
The need for these new promotion rules has emerged following the significant increase in cryptocurrency holdings in the United Kingdom, which doubled between 2021 and 2022.
According to a separate report published by the FCA, 10% of the 2,000 people surveyed by the regulator said they owned cryptocurrencies. The FCA stressed that this strategy is part of its commitment to prevent and reduce serious harm in the cryptocurrency industry, as stated in a press release.
Sheldon Mills, executive director of consumer and competition at the FCA, commented on the following:
“It is up to people to decide whether to buy cryptocurrencies. But research shows that many regret making a hasty decision. Our rules give people the time and information they need about the risks to make informed decisions.”
Companies that fail to comply with the FCA’s upcoming promotion rules could face penalties including up to two years in prison, fines or both.
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