UK Financial Conduct Authority Crypto Crackdown Intensifies

Background on FCA’s Crypto Oversight

The UK Financial Conduct Authority (FCA) has escalated its oversight of the crypto industry, issuing warnings to hundreds of unregistered crypto exchanges and pursuing legal action against companies operating illegally within the country. The agency’s latest efforts target crypto entities that have not secured proper registration or fail to comply with the UK’s financial promotions rules, which were updated in 2023 to include digital asset businesses.

Contents

In October, the FCA published warnings to several unlicensed crypto exchanges, including Elite Bit Markets, Nexure Gainbit, Plux Crypto, and HTX. On Tuesday, the FCA initiated a lawsuit against HTX, citing the platform’s unlawful promotion of crypto services to UK residents. Confirmation of this legal action was provided by an FCA spokesperson, according to Cointelegraph.

Regulatory Framework and Company Obligations

The current regulatory regime requires crypto companies to register with the FCA under anti-money laundering regulations and adhere to the financial promotions rules. These measures are designed to uphold consumer risk protections and ensure responsible advertising of digital assets. Companies that wish to advertise or offer services to UK residents must meet strict compliance requirements.

The FCA classifies financial instruments by risk exposure. Cryptocurrencies are categorized under Restricted Mass Market Investments (RMMI), attributed a medium risk profile. Firms marketing these products must provide clear risk warnings, direct users to comprehensive informational resources, and comply with Know-Your-Customer protocols. Additionally, the new rules restrict incentives or rewards offered to attract consumers to exchanges.

Legal consequences for breaching these laws are significant. Executives at crypto companies violating the UK’s strict advertising standards face penalties that can include up to two years of imprisonment along with other legal sanctions, the FCA emphasized.

Market Reaction and Enforcement Challenges

Despite intensified regulatory action, enforcement remains a challenge. The Financial Times reported that nearly half of all crypto advertisements flagged by the FCA from October 2023 to October 2024 persisted online despite the regulator’s warnings. This ongoing presence of non-compliant advertisements raises questions about the effectiveness of current penalties and the ongoing need for robust enforcement measures.

The FCA’s increased scrutiny comes as UK regulators recently rolled back their ban on crypto exchange-traded notes (ETNs) and issued a roadmap for tokenized investment funds. These reforms are part of a broader strategy to position the UK competitively with other nations, such as the United States, that are adopting more crypto-friendly policies.

What’s Next for UK Crypto Companies?

The UK Financial Conduct Authority’s crypto crackdown signals further scrutiny ahead for unlicensed operators and greater risks for companies not aligned with new compliance standards. Market participants should anticipate ongoing monitoring and the potential for increasing legal actions as the FCA works to enforce regulations and protect consumers.

For more updates on cryptocurrency regulation, visit Vizi’s dedicated cryptocurrency section.