Conventional Wisdom vs. Unconventional Markets
The conventional wisdom would have us believe that the United Kingdom is a minnow relative to comparable markets such as China and the United States when it comes to economic blocs like the European Union. In traditional trade negotiations, market size often decides the scale and quality of terms that can be negotiated. However, in cryptocurrency markets, this rulebook no longer applies.
A Global Financial Hub with a Twist
London’s position as a global financial hub gives UK regulation a significant influence worldwide. The observance of UK financial promotion rules is now non-negotiable when selling fungible, transferable tokens from any country – whether through Europe or not. This means that communication affecting the UK must comply with these rules.
UK Regulatory Superpowers
The UK’s regulatory powers are formidable:
- A breach of UK rules can result in up to two years’ imprisonment and an unlimited fine.
- The Financial Conduct Authority (FCA) has recently published guidance stating that firms providing on/off-ramp services to crypto firms conducting illegitimate activities could themselves be committing an offense or facilitating an offense. Firms breaching the FCA rules risk losing their banking and payment rails.
Growing Regulatory Clarity
As regulatory clarity grows, it makes sense for cryptocurrency companies to take a risk-based approach when entering new markets and engaging with ethical third parties to scale their ventures. For companies looking to expand into the EU, the Markets in Crypto-Assets (MiCA) regulation creates several challenges and opportunities that can be approached from a stronger position than many think.
EU Member States: Diverging Regulations
We are already seeing some divergence between EU member states in this respect:
- The level of taxes imposed on crypto firms
- The ease with which firms can interact with existing infrastructure to sell products
- Whether there is the ability to leverage pre-existing licenses to reduce the cost of going to market
Non-EU Companies: Choosing the Best Jurisdiction
From this perspective, non-EU cryptocurrency companies can choose the best jurisdiction. This takes careful consideration, as advisers in each jurisdiction will seek to sell themselves.
The Cost of Compliance
The cost of compliance with MiCA can be minimized, making it an attractive option for companies looking to headquarter their corporate group in the UK.
- Deep network of legal and financial services
- World-class universities
- Regulatory impact
It is worth noting that the outcome of the European Securities and Markets Authority’s guidance on reverse solicitation provided under MiCA leads to a similar outcome as the UK financial promotion rules.
A UK-First Approach: Setting Global Standards
Companies that take a UK-first approach to their products benefit from an established and robust legal framework internationally recognized by other jurisdictions. Businesses and investors would do well to consider these all-too-often overlooked regulatory advantages when planning for the future.
Conclusion
The UK’s position as a global financial hub gives it significant influence in cryptocurrency regulation. Companies looking to enter or expand into the EU should take advantage of this, choosing the best jurisdiction based on their specific needs.
Pavan Kaur is a partner at Gunnercooke, serving as a fractional chief marketing officer to crypto companies. She is also a GTM strategy expert for Outlier Ventures’ accelerator programs.
