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New regulations from the UK's Financial Conduct Authority (FCA) have come into force on UK companies dealing with Bitcoin and other crypto assets, leading to immediate public disapproval.
These new regulations, which were quietly imposed in mid-February, came as a surprise to many affected users. The FCA has already affected several payment processors such as PayPal and Luno, which have halted all users' ability to purchase Bitcoin. However, the main driver of these new regulations was the development of what the FCA calls “positive frictions”. Building on previous decisions in 2023 to combat the rise of “influencers”, such as banning referral-a-friend bonuses and other incentives from non-crypto investment sites, the FCA aims its new regulations to counter “the social and emotional pressures of investing”. “Basically, this initiative was a single most controversial rule: quizzes and other proficiency tests on all major exchanges, preventing users from accessing their own funds.
It is not surprising that the background to new regulations of this magnitude is very complex. To begin with, the Financial Conduct Authority is a financial regulatory body that exists at the request of the British government, but is not directly controlled by it. Although the Treasury Department makes appointments to this board, its day-to-day functions are independent of direct oversight. For example, the FCA's predecessor agency, the Financial Services Authority (FSA), was established in part to limit the practice of industry self-regulation in the financial sector, a legally recognized type of trade association. In fact, CryptoUK, the self-regulatory trade association for digital assets in Britain, has spoken out directly against these new regulations.
All of this means that it is not surprising that the FCA feels empowered to act unilaterally, especially when doing so conflicts with some of Parliament's long-term economic objectives. British Prime Minister Rishi Sunak has set an ambitious policy by trying to boost growth in the cryptocurrency space. Sunak wants to make the country a “crypto hub”, attracting international capital and facilitating the development of the industry through friendly regulation. It is no wonder that Sunak has identified Bitcoin as an area of significant growth: a large proportion of Britain's current economy is supported by similar long-standing international relationships in the world of banking and financial services, and the outlook for the economy as it stands is underdeveloped.
So, if the same revenue streams have failed to meet expectations, why not look to a fast-growing industry that can undoubtedly benefit from these established connections? Sunak claimed that the first item on his pro-Bitcoin agenda was to pass clear legislation around the stablecoin, but new Financial Conduct Authority (FCA) regulations were also high on his list of priorities. There's only one question, then. Why has the agenda to place exchanges under “the same legal framework that covers investment banking and insurance” led to such overreach?
For starters, the Financial Conduct Authority (FCA) has been notable for its notorious hostility towards Bitcoin in the past few months. Although the United States made headlines around the world with its approval of a Bitcoin exchange-traded fund, futures ETFs with indirect ties to the actual valuation of Bitcoin were legal long before that. However, the Financial Conduct Authority (FCA) has decided to completely shut down Bitcoin-related derivatives in 2021, and has given no indication that it wants to change this position. This reactionary position puts the UK behind not only the United States, but also most of its other major trading partners; Both prominent members of the English-speaking world such as Canada and Australia as well as the European Union have begun to embrace the multi-billion dollar financial derivatives market. Even Hong Kong, which has long-standing economic ties with Britain, has shown greater receptivity on this front.
Needless to say, the FCA's conservative stance towards such a huge and growing industry has not gone unnoticed. Lisa Cameron, MP and Chair of the Cryptocurrencies and Digital Assets Parliamentary Group (APPG), has made public statements along very similar lines to reports published by the APPG, claiming that the world of Bitcoin is of vital economic importance. “Although the APPG was clear in its latest report on the investigation, we must ensure that the UK has strong standards in terms of regulation and consumer protection,” Cameron said. “APG recognizes that the new financial promotions regime has caused complications for some cryptocurrency and digital businesses, and is aware of reports that a number of operators have temporarily halted cryptocurrency purchases while they adapt to the new regime.” She continued: “While consumer protection must remain a top priority, the government and regulators must also take care to ensure that we do not inadvertently prevent responsible and regulated operators from choosing to invest in the UK.”
So, if nothing else, concern about these regulations is shared by actual legislators, not just society. Cameron's criticism seems particularly noteworthy because she has only been part of Sunak's party since October 2023, having previously won three elections under the SNP ticket. Additionally, Coinbase also made headlines with its January appointment of George Osborne, the former Chancellor of the Exchequer, to an advisory role. Considering that Coinbase is one of the exchanges most directly affected by these new rules, the man who has been in charge of the treasury for 6 years is bound to have helpful advice.
In other words, there are potential sources of opposition from several different sectors, with both government figures and industry leaders voicing their opposition, along with consumers as a whole. As for when the FCA will change its policies, that's anyone's guess. Meanwhile, there have been many other notable interactions between the British legal system and the Bitcoin world. Craig Wright, nicknamed “Fake Satoshi,” is currently embroiled in a lawsuit over his ongoing claims that he is the true inventor of Bitcoin. If the court rules against him, it could be the end of a recurring episode in the Bitcoin subculture. Likewise, although the United States is known for carrying out the most high-profile large-scale Bitcoin seizures, British law enforcement authorities were able to seize more than £1.4 billion worth of Bitcoin in late January.
It is likely that the FCA rules will eventually be relaxed one way or another, as the British government has given such priority to making these new regulations industry-friendly. If the response is strong and diverse enough, it will be clear that a new path is needed. Bitcoin's economic star has been on a steady rise over the past few years, and is too powerful for unelected regulators to tolerate a high degree of stubbornness. If we can see it in the US fight for a Bitcoin ETF, we can see it in the response to the FCA: no one is strong enough to challenge Bitcoin's crown.
