Why Some Crypto Firms Are Suspending Services in the U.K.

Bybit and PayPal have recently withdrawn certain services from the U.K. and Luno has halted some U.K. clients from investing in crypto – just ahead of tough new promotions rules for crypto firms coming into effect.

AccessTimeIconOct 4, 2023 at 7:22 a.m. UTC
Updated Oct 4, 2023 at 12:19 p.m. UTC
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  • New promotions rules that require crypto firms to provide clear risk labels and implement system changes are coming into effect on Oct. 8.
  • Some international crypto firms serving U.K. clients have decided to pause certain services until they're compliant with the new rules.
  • Local regulators are concerned some other overseas firms aren't ready to comply with the regime.

Crypto firms serving U.K. customers are getting ready for the country’s tough new rules on advertising, with some announcing they are cutting off local clients from accessing certain services in order to comply.

While the new regime temporarily gives crypto firms the power to authorize their own promotions in the country, only firms that are registered with the Financial Conduct Authority (FCA) as virtual asset service providers get that privilege. The rules also require firms to make significant changes to their online platforms to better warn potential customers of investment risks.

Unregistered firm ByBit has said it is halting services to U.K. clients ahead of Oct. 8, the effective date for the rules. Luno which is also not registered with the FCA is halting some U.K. clients from making crypto investments. Luno, like CoinDesk, is owned by the Digital Currency Group.

While payments giant PayPal said it was suspending some crypto services until it is compliant with the new rules.

Though the FCA consulted on a promotions regime for crypto over a year ago, its guidance only came out a few months back, and “many [firms] feel that there was too short a time period between guidance being issued and the implementation date,” Su Carpenter, director of operations at lobby group CryptoUK said.

“We do know many [firms] are nervous about their interpretation of the guidance and as such will be taking a slow and cautious approach to their future financial promotions,” Carpenter said.

The FCA is letting firms apply for a three-month extension to make the necessary changes. “These rules require significant system builds and operational changes,” the regulator said.

But officials at the FCA told CoinDesk in a Monday interview that the regulator was concerned some international firms were not very interested in complying with the regime.

It’s technical

Any invitations or benefits offered to a person such as cash or goods to invite investment would be classed as a financial promotion under the FCA regime.

“Essentially, all communications to U.K. consumers in relation to crypto assets which could be seen as an invitation or inducement to invest, must comply with the rules,” said Asim Arshard senior associate at law firm Lawrence Stephens.

For crypto firms, that largely operate online, complying means making changes to their websites. The FCA said earlier this month that firms had faced significant challenges trying to implement a 24-hour cooling period for first-time buyers that requires platforms to wait at least a day for users to re-confirm they want to receive invitations to invest. Firms have also struggled to put in place measures to assess if certain products are appropriate for clients, according to the regulator.

“We’ve just been working as quickly as possible to kind of develop the back-end platform changes that are necessary as well as reviewing our content to make sure it’s fair, clear and obviously in line with the new guidelines,” Moonpay’s Deputy General Counsel Matt Sullivan said.

“I think the FCA set a pretty aggressive schedule. But again, I think the FCA showed their flexibility and their kind of business-orientated approach by pushing the deadline,” Sullivan said, adding that his company will be applying for the extension.

Crypto exchanges Bitstamp, Bitpanda, Kraken and crypto platform Zumo, which are registered with the FCA, also told CoinDesk they were not planning to halt operations.

“The firm is preparing for the new crypto asset financial promotions regime and does not have plans to suspend services to existing U.K. customers at this time,” a Bitpanda spokesperson said.

Unregistered companies – whose ads are not authorized – have to stop communicating crypto services to U.K. clients to comply with the upcoming rules.

Unregistered Companies

Some crypto exchanges have announced they are pulling back from serving some or most U.K. clients in light of the new rules. Bybit said it will suspend U.K. operations and Luno is planning to stop some U.K. clients from investing in crypto.

The FCA declined to comment on individual firms, but an official told CoinDesk on Monday that “where firms are making decisions to actually get to the standards we want to see, that’s really positive.”

Officials said the regulator is concerned by a lack of engagement from some unregulated overseas firms in complying with the rules.

Many companies that failed to register with the FCA under its anti-money laundering register continued serving U.K. clients from overseas, CoinDesk reported in February. But that may be difficult under the new regime.

“If you are an unregistered provider the loopholes that were available to you start getting closed down and people that were relying on reverse solicitation, or they were relying on arguments that they didn’t actually provide the service from the U.K. and things like that. It’s much harder to take those views,” Diego Ballon Ossio, partner at Clifford Chance law firm said. Reverse solicitation is the argument that clients approach a company first.

The promotions regime looks to see if any communication, whether it’s the first solicitation or ongoing business communication, contains a promotional element, Ballon Ossio added.

Overseas firms can either register with the FCA to be able to approve their own promotions or get an authorized company to do so for them, Ballon Ossio said.

However, crypto advocates fear that not many authorized firms would be willing to approve crypto ads, and the industry’s reputation especially following 2022’s stunning market collapse doesn’t help.

Next year, the FCA will slap firms that approve others’ ads with additional requirements such as having to continuously monitor promotions. This will make it “really hard to find somebody who meets all the criteria, who is authorized, instead of registered, that is willing to take on the liability,” Ballon Ossio said.

CORRECT (Oct. 4, 12:15 UTC): Corrects the story throughout to clarify that Luno is halting some U.K. users from investing in crypto.

Edited by Sandali Handagama.


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Camomile Shumba

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.

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