Published: July 5th, 2023
Britain’s new Financial Services and Markets Act 2023 officially became the law of the land this week, recognizing crypto trading as a regulated and legitimate financial services activity. The UK reform bill, which was given Royal Assent by King Charles on Tuesday, was described in a Westminster press release as having the potential to give Britain's economy ‘a rocket boost.’
Under the new law, cryptocurrency trading can now be subject to rules and regulations designed to protect investors, levelling the playing field by adding transparency, standard definitions, and risk mitigation to crypto trades. The amended Act defines digital assets as ‘cryptographically secured digital representations of contractual rights or underlying value,’ and labels them as regulated financial products, investments, or instruments.
The Treasury press release noted that the goal of the law is to regulate how crypto assets are traded and held in custody and ensure their safe adoption in the country. The new law is being touted by the government of Prime Minister Rishi Sunak as a much-needed modernisation of Britain’s financial-services dependent economy.
‘This new law enables us to take back control of the UK's financial services regulatory regime,' said Economic Secretary to the Treasury Andrew Griffith. ‘By replacing old EU laws set by bureaucrats in Brussels it has the potential to free up billions of Pounds in investment, money that could spur innovation and drive economic growth’.
In Britain's parliamentary procedure for enacting new laws, Royal Assent is the end of the legal process that makes a proposed bill the law of the land, turning it into an Act of Parliament. The bill passed a vote in the House of Commons and was approved by the House of Lords in late June.
It was the first good news on crypto’s regulatory front since the FTX meltdown spurred a wave of enforcement actions by American financial watchdogs, in particular the Securities and Exchange Commission (SEC).
In early June, the price of Bitcoin fell sharply and triggered an overall plunge in crypto markets after the SEC began enforcement action against Binance, the world’s biggest crypto exchange.
In the view of regulators, the company ‘demonstrated utter disregard for American securities law.’ The SEC’s filing said Binance had 'illegally tried to convince US crypto traders to buy, sell, and trade digital assets’ which the SEC says are ‘securities’ under US law.
The agency’s lawsuit alleges that in December 2018, Binance’s Chief Commerical Officer (CCO) admitted the company was running afoul of US securities law.
‘We are operating a f****g unlicensed securities exchange in the USA bruh,” the executive said in an email to Binance’s compliance officer.
In a separate filing also made on 5th June, the SEC added several leading cryptocurrencies, including Solana, Cardano, and Binance’s own Binance Coin (BNB) to the list of securities that fall under its jurisdiction.
In total, the agency said 12 separate tokens being traded on Binance were classed as securities. Crypto market watchers have noted that most of the 12 fetch minimal volumes and depend on Binance for the lion’s share of their liquidity.
In June, data from CoinGecko showed that more than USD 11 billion in trades had occurred on Binance in one 24 hour period.
The world's leading crypto exchange has often failed to inspire confidence amongst regulators and even business partners. In May of this year the company announced it would end deposits and withdrawals in Sterling from 22nd May.
An email sent to exchange users on Monday, 13th March said the company’s payments processor Skrill, which provides Binance’s Faster Payments Service in the UK, has backed out of a deal to support GBP transactions.
At time of writing, new Binance accounts were restricted from making GBP deposits, though the company said in its email that current users would still be able to access their GBP balances until the May deadline.
According to Binance, the change affects less than one per cent of Binance customers.
It's not the first time the exchange has had difficulties accommodating trades in GBP.
Binance added its first Sterling trading pairs in 2020, ahead of the launch of its UK trading platform. At the time, British citizens could trade Pounds for crypto through the Binance Jersey subsidiary, an entity incorporated in the UK's Channel Islands low-tax jurisdiction.
But a year later, Britian’s Financial Conduct Authority (FCA) watchdog told the company it had to cease all 'regulated activities’ in the UK until it received written consent.
Between June 2021 and March 2022, Binance users were blocked from using GBP or EUR to fund their accounts. The exchange found a way around the restrictions by using PaySafe-owned Skrill as its UK fiat partner, and reintroduced Sterling and Euro transactions.
A Skrill representative told Bloomberg that the company has since decided that the UK regulatory environment for cryptocurrency transactions ‘is too challenging at this time’.
‘In an abundance of caution we've taken a prudent decision to withdraw from the Binance relationship.’
SEC chairman Gary Gensler told attendees at the Financial Markets Conference in May that the rules for crypto companies ‘have already been published,’ adding that he didn’t believe the agency was behind the times.
A wave of enforcement actions began in the Spring he said, many of them pre-dating the FTX meltdown. This proved that the SEC was up to the job, he said, and told event attendees that too many cryptocurrency companies have developed business models that amount to fraud.
In many cases, calling these businesses decentralised ‘is a false narrative,’ Gensler said. ‘Many have centralised aspects with most business and development activity focused in these areas.’ He went on to say that it’s common for crypto business models to rely on ‘taking customer funds and commingling them,’ something FTX executives have been accused of.