Partner Kate Gee commented:
"This defined window gives firms the opportunity to ensure that their application is properly considered ahead of the regime coming into force. Firms should review existing arrangements and implement any necessary changes (governance, operational matters, systems and controls) ahead of preparing their application, mindful of the guidance set out in the FCA's regime policy statements and taking into account other regulated activities beyond crypto.
"The new regime does not remove the risk that consumers can lose substantial money fast on crypto-assets or that businesses with crypto exposure can collapse. The FCA's package of regulations aims to bring the crypto industry broadly in line with the principles already at the heart of financial services regulation, but these are new rules for the crypto sector, and it remains to be seen if they are sufficiently tailored to manage the levels of risk.
"One of these measures is the introduction of a capital requirement. In this respect, the FCA have cut the proposed K-factor from 2% (which the industry felt risked stifling growth) to 1% - rendering the prudential framework more proportionate, and seeking to ensure robust risk management without creating an unduly high capital burden for larger issuers. In parallel, firms will be required to conduct and report annual stress tests based on their internal risk assessments. In short, not a complete answer to the risks posed to investors – but a positive step towards greater transparency and regulatory supervision, balanced against the flexibility required for company and industry growth and innovation in the crypto space.
"Crypto firms must obtain FCA authorisation to operate in the UK – this includes stablecoin issuers, custodians, trading platforms and intermediaries. The guidance gives firms certainty as to what is required: they should now seek authorisation (or variation of their permissions) from the FCA, so that they secure the necessary regulatory clearance ahead of the regime coming into force in October next year. In addition, looking ahead to future compliance with crypto regulations and other financial services regulations, firms should review and update their systems, controls, governance and operational policies – this will include a review of the group structure and relationships with third party providers."