DLT and cryptocurrencies
FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
There has been a reduction in consumer enthusiasm for crypto currencies over the last year or so, due to the volatility in the markets, and a lack of transparency and understanding of the economic fundamentals.
The Bank of England issued a Discussion Paper on systemic stablecoins and central bank digital currency (“CBDC”) on 7 June 2021. The responses to the Discussion Paper were published on 23 March 2022. The Bank of England and HM Treasury (the UK’s finance ministry) will consult further on its final regulatory approach, subject to the outcome of legislation. As yet, no decision has been made whether to introduce a UK CBDC.
The UK Government and FCA continue to take a “wait and see” approach to crypto currencies.
Obligations and requirements to provide financial services using crypto currencies described above
Dealing in crypto currencies is not a regulated activity in the UK (with certain exceptions, such as stablecoins, and other derivatives such as futures, options and contracts for differences).
In January 2020, new regulatory powers were introduced to allow the FCA to supervise how crypto asset businesses manage the risk of money laundering and counter-terrorist financing. Now UK crypto asset businesses must register with the FCA (but are not required to be authorised) for money laundering compliance purposes under the MLRs.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Transactions using crypto currencies may be subject to regulation under FSMA under general principles (such as providing credit or payment services).
The FCA takes the view that crypto assets and their underlying technologies can offer benefits to financial services firms e.g., reduce costs and increase efficiencies, but also present risks to market integrity and consumers, particularly when used as a speculative investment. They also present significant risks in relation to financial crime and money laundering. Whilst dealing in crypto currencies is not a regulated activity, the FCA requires authorised firms to use a similar approach to that for the regulated activities they conduct, and to have appropriate systems and controls to counter the risk of being misused for financial crime.
The FCA has also recently (August 2022) announced new rules to deal with misleading adverts that encourage investing in high-risk products.
It is expected that in the near future the UK Government and Parliament will introduce legislation to bring marketing of crypto assets into the FCA's remit.
Market size for financial services using crypto currencies and biggest companies in this business area
Due to the unregulated nature of crypto currencies, no reliable information about market size is available.
Estimates of the number of people in the UK holding crypto currencies vary greatly (from between around 4 to 9 million).
The UK is regarded as the leading country in Europe for cryptocurrency transactions, with an estimated £123 billion of transactions annually (2021)
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area