The UK crypto industry is bracing for a new era of regulation as the Financial Conduct Authority prepares to introduce an authorization regime by 2026, requiring firms to undergo a fresh process to secure approval. The upcoming legislation will define regulated activities and companies must adapt to ensure compliance with the new rules.
The Financial Conduct Authority (FCA) is set to introduce a new authorization regime for crypto companies in the UK, marking a significant shift from the current anti-money laundering (AML) framework. The impending gateway regime, slated for 2026, will require firms like exchanges, stablecoin issuers, and trading platforms to undergo a fresh process to secure approval from the FCA.
The United Kingdom has emerged as a hub for cryptocurrency and blockchain companies.
According to a report, the number of crypto startups in the UK grew by 25% between 2020 and 2021.
London's financial district is home to over 50% of the UK's crypto firms, with many more based in cities like Manchester and Birmingham.
The UK government has implemented favorable regulations for crypto businesses, making it an attractive location for entrepreneurs.
The Current Landscape
Since its AML register opened in 2020, the FCA has received ‘368 applications’ from firms wishing to comply. However, only 50 firms – approximately 14% of applicants – have been approved so far. Many firms may need to start again under the new regime, which will come with wider permissions.
The Current Landscape
The upcoming legislation will define what counts as a regulated activity, and companies that engage in those activities will need to seek authorization. Regulated activities are expected to include crypto and fiat-referenced stablecoins issuance, payment, exchange, and lending activities.
Regulated Activities
Stablecoins will no longer be brought under the UK payments regulations as set out in previous work. The FCA plans to consult on draft rules for stablecoins early this year, with the goal of adapting existing regulation to accommodate their unique characteristics.
A stablecoin is a type of cryptocurrency that is pegged to a fiat currency, such as the US dollar.
Its value is stabilized by being tied to an underlying asset or a basket of assets, reducing the volatility associated with traditional cryptocurrencies.
Stablecoins are designed for everyday transactions and can be used for cross-border payments, micropayments, and other applications where price stability is crucial.
Stablecoins: A Unique Case
The FCA is still deciding on the process crypto companies will need to go through to get authorized. However, it is expected that those already registered in the money laundering regime will need to take additional steps to secure further permissions under the new regime. Companies may need to go through a lengthy registration process – even if they’ve already secured an existing license.
The Transition Period
The FCA plans to consult on draft rules for stablecoins early this year, with an eye towards understanding best practice from European countries that have launched bespoke legislation for the crypto sector. The International Organization of Securities Commissions (IOSCO) will soon be publishing a piece on how countries are progressing with its standards.
Looking to Europe and Best Practice
The introduction of the new authorization regime marks a significant shift in the UK’s approach to regulating the crypto industry. As the FCA prepares for this change, it is clear that companies must adapt to ensure compliance with the new rules and regulations.
A New Era of Regulation
