- Crypto industry stakeholders have asked the U.K. government to consider extending regulatory exceptions for foreign TradFi firms to crypto.
- The U.K. government has said it doesn’t plan to do so.
- The tough requirements on foreign crypto firms could drive business away from the aspiring digital asset hub, lawyers told CoinDesk.
The U.K. government plans to apply its upcoming crypto rules to all firms, without exception, a decision lawyers say could drive international companies out of the market.
Industry stakeholders have called for the government – which has said it wants to turn the U.K. into a global hub for crypto – to grant some regulatory exceptions for foreign crypto firms looking to operate in the country. In particular, they want it to expand the scope of overseas persons exclusions (OPE) to include crypto.
The OPE allows some traditional financial institutions (like multilateral trading facilities that exchange financial instruments) to operate without authorization. For example, the OPE can be used when the regulated activity is done “with or through” an authorized or exempt person.
The industry requests were made during a government consultation on crypto regulation, and in its response, the government made it clear that it was not planning to extend the OPE to crypto.
Choosing not to make those exceptions, however, could stifle international firms’ willingness to operate in the U.K., said Albert Weatherill, a partner at law firm Norton Rose Fulbright during an interview with CoinDesk.
"The removal of the OPE, I think, is a bit of a blow – in my opinion – for the industry," Weatherill said.
Harsher rules for crypto
The government doesn’t want to extend the OPE to crypto because "the context of crypto asset markets is not the same as those for traditional financial products to which the OPE already applies," it said in its consultation response.
The government's position is that firms that deal with U.K. retail consumers should be required to be authorized regardless of where they are located.
"It often isn’t possible to use the OPE if you provide services to retail clients," Hannah Meakin, also a partner at Norton Rose Fulbright told CoinDesk in a statement.
However, "what the government is actually doing is blocking use of the OPE for crypto to any overseas person, even if they’re only doing institutional business," Meakin said. "Perhaps the government thinks there is a different solution, such as deference or equivalence, but we are still waiting to see any details on this."
CoinDesk also reached out to the U.K. Treasury for more clarity but did not hear back before press time.
"They could have just narrowed the overseas persons exclusions more to say it's only available for wholesale transactions but they haven't," said Diego Ballon Ossio, partner at law firm Clifford Chance. "So I think that's a missed opportunity."
U.K. regulators plan on supervising crypto in phases, starting with stablecoin legislation coming early next year with policies for the wider crypto sector coming later. It has already passed legislation that treats crypto as a regulated activity under the Financial Services and Markets Act 2023.
The government wants international crypto trading firms to have to set up a U.K. branch if they want to get authorized to operate in the country, but companies may simply decide it’s "not worth the hassle," Weatherill said.
"If you are an exchange that's very active in Asia your client base is not normally here, but you've got lots of liquidity, why would you want to get a branch here if you have to go through the pain of setting up the brands, hiring people, etc..?" Ballon Ossio said.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.