UK Financial Conduct Authority Drops Gradual Approach to Cryptocurrency Regulation – FinanceFeeds

The Financial Conduct Authority, the UK’s financial watchdog, has published a new discussion paper addressing the regulation of cryptoassets meant to improve the integrity of the UK’s crypto markets, help protect people, and support the UK’s growth and competitiveness.

This initiative aligns with the UK government’s plans to legislate a comprehensive financial services regime for cryptoassets. The new approach abandons the previously proposed phased implementation, regulating fiat-referenced stablecoins and broader crypto trading activities simultaneously.

The regulator claims that admissions and disclosures and market abuse regimes are crucial to improving the integrity and cleanliness of crypto markets. Feedback should be given until 14 March 2025.

Crypto trading platforms should share info to stop market abuse

The “Discussion Paper DP24/4” sets out proposals for firms to introduce strong controls that prevent harm and suggests that firms like authorized crypto trading platforms share information to help stop suspected market abuse to reduce fraud and help promote good practices in the sector.

“We encourage industry to share its expertise and help us shape the rules. We want industry to take the lead in developing new ways of disclosing important information to make sure people understand the risks before purchasing crypto,” said the FCA announcement. “We want to develop a crypto regime that is fair, balanced, and proportionate for all. We need input from the Government, our international partners, industry, and consumers to help us get the future rules right.”

The FCA warned that, currently, crypto remains largely unregulated in the UK and high risk. “If something goes wrong, it’s unlikely you will be protected and you should be prepared to lose all your money.”

Crypto trading, custody, and stablecoin issuance under FCA oversight

The UK government has announced plans to legislate a comprehensive financial services regime for cryptoassets. This regime will integrate crypto activities like trading, custody, and stablecoin issuance into FCA oversight. The legislation abandons the previous phased approach, with fiat-referenced stablecoins and broader crypto trading activities now regulated simultaneously.

The paper seeks to develop rules that reduce market risks without hindering innovation. It aligns with FCA objectives: consumer protection, market integrity, and effective competition, while promoting international competitiveness.

Admissions and Disclosures Regime (A&D)

The proposed A&D regime establishes rules for the issuance and admission of cryptoassets to trading on regulated Cryptoasset Trading Platforms (CATPs). This regime seeks to address risks such as fraud, scams, and the lack of reliable information, which currently undermine investor confidence and market stability.

Under the A&D framework:

Admission Documents: Cryptoassets seeking admission to CATPs must provide detailed documents containing essential information. This includes key features, associated risks, governance mechanisms, and technology details to help consumers make informed investment decisions.
Due Diligence: CATPs will be required to conduct thorough due diligence on issuers, their admission documents, and associated risks. This process may include reviewing third-party audits of cryptoasset protocols, such as security and code assessments.
Rejection Mechanisms: CATPs must have clear processes for rejecting cryptoassets that pose significant risks to consumers, such as technological vulnerabilities or fraud potential.
Liability Framework: Preparers of admission documents will be held accountable for inaccuracies under a “negligence” standard, similar to the approach in traditional securities markets. To encourage transparency, specific forward-looking statements will be protected under a separate liability standard.
National Storage Mechanism (NSM): All admission documents must be filed on the FCA’s NSM in a machine-readable format, ensuring transparency and easier access to critical information for market participants.
The FCA seeks to strike a balance between prescriptive rules and flexibility, allowing CATPs to set additional requirements for admission documents while maintaining consistent standards.

Market Abuse Regime for Cryptoassets (MARC)

The MARC framework is designed to prevent, detect, and disrupt market abuse in the cryptoasset market. Drawing from the existing UK Market Abuse Regulation (UK MAR), the proposed regime will prohibit harmful behaviors such as insider dealing, unlawful disclosure of inside information, and market manipulation.

The FCA highlights several challenges unique to crypto markets, including fragmented trading platforms, the absence of identifiable issuers for certain assets, and the cross-border nature of cryptoactivity. These differences require a tailored approach to deliver regulatory outcomes comparable to those achieved in traditional markets.

Key proposals under MARC include:

Market Abuse Prohibitions: Cryptoassets traded on regulated CATPs will be subject to prohibitions on insider trading, market manipulation, and the dissemination of false or misleading information.
Inside Information Disclosure: Issuers of cryptoassets will be responsible for publicly disclosing inside information. Where no identifiable issuer exists (e.g., Bitcoin), the responsibility shifts to the non-issuer, such as a CATP, that sought admission to trading.
Cross-Platform Information Sharing: CATPs will be required to share information to help detect and disrupt market abuse across platforms. This is crucial to addressing the cross-market risks posed by fragmented and decentralized trading activity.
Systems and Controls: CATPs and intermediaries must implement robust systems to monitor, prevent, and address abusive market behaviors, such as suspicious trading patterns or misuse of non-public information.
The FCA emphasizes the importance of international alignment to prevent regulatory arbitrage, where firms exploit jurisdictional differences. Adopting global standards will enhance cooperation across borders and ensure more effective oversight of crypto markets.

Source link

#FCA #Abandons #Phased #Approach #Crypto #Regulation #FinanceFeeds