February 2023 was another busy month for the regulators as the adoption of cryptocurrencies continues at an increased pace.
The move towards greater regulation of the cryptocurrency industry is the general trend in many jurisdictions worldwide as governments and regulators seek to address concerns around potential risks such as money laundering, fraud, and investor protection.
The UK’s Financial Conduct Authority (FCA) announced new rules for cryptocurrency businesses operating in the country and also set out expectations for cryptoasset firms registration applications. Meanwhile Dubai announced new regulations requiring cryptocurrency companies to obtain licenses to operate. At the same time UK Financial Conduct Authority (FCA).
On January 25, 2023, the FCA published its feedback on good and poor quality applications and set out its expectations for cryptoasset firms’ registration applications under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
According to the FCA, a good quality application should demonstrate a transparent and credible business plan, including a description of the activities to be carried out, the target market, and the business model. The application should also include a comprehensive risk assessment, including an assessment of the risks of financial crime, cybersecurity, and operational risks.
The FCA expects cryptocurrency businesses to have robust governance arrangements, including a clear organizational structure, policies and procedures for risk management, and effective systems and controls to monitor and mitigate risks. Cryptocurrency businesses should also demonstrate that they have the appropriate resources and expertise to carry out their activities while staying compliant.
On the other hand, poor-quality applications are likely to be incomplete or inaccurate, with insufficient information on the business model, target market, or risk assessment. Poor-quality applications may also need more evidence of appropriate governance arrangements, resources, or expertise or fail to demonstrate an adequate understanding of regulatory requirements.
Overall, the FCA’s guidance on suitable and poor-quality applications emphasizes the importance of transparency, risk management, and compliance in the cryptocurrency industry.
The UK Treasury launched its consultation on a new regulatory regime for cyptoassets on February 1, 2023, which is expected to come into effect in the near future. The proposal aims to bring greater clarity and stability to the crypto industry and protect consumers from the risks associated with investing in cryptocurrencies.
This new regime is expected to include the following measures:
The UK Treasury has stated that it aims to balance promoting innovation and protecting consumers and is committed to ensuring that the UK remains a competitive and attractive location for cryptoasset businesses.
On February 7, 2023, Dubai’s Virtual Asset Regulatory Authority (VARA), issued its comprehensive Virtual Assets and Related Activities Regulations.
The regulations established by VARA is designed to provide a comprehensive framework for regulating virtual assets, focused on addressing the risks that investors and the market face when it comes to the activities of virtual asset platforms. The regulations also establish standards for a compliance framework consistent with other regulatory bodies requirements.
To comply with the regulations, all virtual asset platforms (VASPs) that are licensed by VARA will be required to follow four compulsory Rulebooks. These include the company, compliance and risk management, technology and information, and market conduct sections. In addition, the organization has also developed seven activity-specific rules that are designed to address the various risks associated with the operations of virtual assets, such as:
By requiring cryptocurrency companies to obtain licenses and comply with regulatory requirements, Dubai is taking a proactive step towards managing these risks while fostering innovation and growth in the industry.
At Crystal, our Regulatory & Compliance team keeps a keen eye on global regulatory developments as they happen. For all crypto compliance and regulation questions, please get in touch with us at [email protected]