New UK Crypto Laws Pose Stiff Challenge for Most Firms, Cautions Delphi Labs Counsel

The cryptocurrency landscape is facing a significant regulatory shake-up in the United Kingdom, with the Financial Conduct Authority (FCA) introducing stringent financial promotions regulations set to take effect in October. Delphi Labs' general counsel, Gabriel Shapiro, has issued a warning, stating that the majority of crypto firms will find it immensely challenging to comply with these new rules.

Shapiro's concerns, shared in a post on social media platform X (formerly Twitter) on September 11, center around the feasibility of strict compliance with the FCA's regulations. He argues that achieving full compliance may only be possible for centralized exchanges and a select few established DeFi (Decentralized Finance) projects. However, even these entities may struggle to meet the stringent requirements within the provided timeframe.

One of the major obstacles highlighted by Shapiro is the financial burden associated with compliance. He estimates that each crypto project could require a minimum investment of $500,000 for legal counsel and development purposes. Meeting these financial obligations might force crypto firms to reallocate funds from other essential areas of their operations.

While Shapiro acknowledges that these regulations aim to protect investors in cryptocurrency assets, he raises concerns about their compatibility with the nature of the industry. Many cryptocurrency technologies operate on a peer-to-peer basis, and a significant portion of industry participants does not function as intermediaries or custodians, making it challenging to fit within the regulatory framework.

The New Regulations:

The updated financial promotions regime by the FCA imposes strict guidelines on how cryptocurrency firms can promote their services to UK residents. Notably, one significant consequence of these regulations is the prohibition of cryptocurrency referral programs, among other restrictions.

However, the FCA has also established legitimate channels for companies to market crypto assets to consumers in the UK. These pathways include communication by authorized individuals, communication by unauthorized individuals with approval from authorized parties, or contact by companies registered under the FCA Money Laundering Regulations (MLRs).

Impact on Crypto Firms:

These new regulations have already prompted significant adjustments in the strategies of several crypto firms operating in the UK. Companies like Luno and PayPal have had to reconsider their services in light of the upcoming legislation. Both firms have announced plans to restrict certain services within the UK jurisdiction starting in October.

The cryptocurrency industry in the UK faces a daunting challenge with the impending implementation of the FCA's stringent financial promotions regulations. Gabriel Shapiro's warning underscores the complexity and financial burden associated with compliance, while also raising questions about the regulations' compatibility with the peer-to-peer nature of many crypto technologies. As October approaches, crypto firms will need to navigate these new rules and adapt their operations to ensure compliance while addressing the associated financial and operational challenges.