FCA Releases Discussion Paper on Crypto Market Transparency and Abuse Regulation

FCA Releases Discussion Paper on Crypto Market Transparency and Abuse Regulation

In a significant step toward regulating the UK’s cryptocurrency market, the Financial Conduct Authority (FCA) has released a discussion paper seeking public feedback on two key areas of crypto market regulation: admissions and disclosures, and market abuse. The paper marks another milestone in the ongoing process of shaping crypto regulations in the UK, with a potential formal regulatory framework expected by 2026.


Expanding the FCA’s Regulatory Authority

Under the UK government’s proposed plans, the FCA’s role in the crypto space will be extended beyond its current oversight of Anti-Money Laundering (AML) and financial promotions. The regulator is set to gain responsibility for regulating a broad range of crypto-related activities, including crypto asset trading, stablecoin oversight, intermediation, custody services, and more.


The regulation will be designed to address the emerging complexities of the crypto market, with the FCA aiming to impose clear standards for the operation of crypto asset platforms. The discussion paper outlines the regulatory framework, which includes provisions for public crypto asset offerings, tokenized financial instruments, and investment vehicles. The Financial Services and Markets Act 2000 (Regulated Activities) Order (RAO) 2001 already covers tokenized financial instruments and security tokens, and these will be incorporated into the broader regulatory structure.


Public Offers and Exemptions

A major focus of the FCA’s proposed regulation is on crypto asset offerings and the criteria for public disclosures. The FCA envisions that public offers of crypto assets will generally be prohibited unless certain exemptions apply. For instance, offerings made through a Crypto Asset Trading Platform (CATP) or those available only to qualified institutional investors may be exempted.


If an exemption is granted, the FCA requires that appropriate due diligence and disclosures are carried out before the asset is admitted to trading on a CATP. Failure to meet the necessary standards could result in the FCA directing firms to provide compensation for breaches of financial promotion rules.


Addressing Market Abuse in Crypto

Another critical aspect of the FCA’s paper is its approach to market abuse in the crypto sector. While the FCA has extensive powers to address market abuse in traditional finance, it acknowledges that the existing civil market abuse regime cannot be directly applied to crypto assets due to the unique nature of the market.


The FCA has drawn from international guidance, particularly recommendations from the International Organization of Securities Commissions (IOSCO), to shape its proposals for market abuse regulation in the crypto space. The regulator has stated its intention to create a system that enables cross-platform information sharing to help detect and prevent market abuse.


For example, if a CATP offboards a user suspected of market abuse, the FCA proposes that information on the user’s behavior could be shared with other platforms where the user holds accounts. This would help other platforms make more informed decisions and mitigate risks associated with potential market manipulation or fraudulent activities.


Feedback and Next Steps

The discussion paper, released in December 2024, poses 49 questions on various aspects of crypto asset regulation, including the new proposals for transparency and market abuse. The FCA is inviting feedback from domestic and international stakeholders, with a particular emphasis on the wholesale sector. Stakeholders have until March 14, 2025, to provide their input.


The UK government first outlined its plans for a comprehensive crypto regulatory framework in February 2023. In November 2024, it confirmed its commitment to this plan, though with an updated implementation timeline that eliminates the previously proposed phased approach. The FCA has indicated that it will consult separately on stablecoin regulation in the future.


As the UK continues to refine its approach to crypto regulation, the outcome of this discussion will be critical in shaping the future of the crypto market in the country, ensuring greater transparency, reducing the risk of market abuse, and providing a framework for responsible innovation in the sector.

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