Regulatory uncertainty has been a way of life for crypto exchanges from the beginning. Running a cryptocurrency-related business is like walking through a swamp in many ways – you never know what you’re waiting for in the next step.
But apparently it has never been more like this than in the UK at the end of 2020.
On paper, Brexit has already officially taken place. But in reality, the stinky stuff hasn’t hit the fan yet: the UK’s de facto exit from the European Union will take place in January 2021, after the official “transition period” comes to an end.
2020 was supposed to be a year to negotiate with the EU, forge post-union union deals and “achieve Brexit,” in the words of British Prime Minister Boris Johnson, who won the general election nearly a year ago with this very catchphrase.
Then came the coronavirus pandemic, and suddenly Brexit was pushed to the outer margins of the political agenda, both in London and Brussels.
Politicians, perhaps understandably, have had much bigger fish to fry this year. But as the year-end deadline begins to approach dangerously close, pressing questions must be answered quickly for all kinds of business sectors.
But what does all this mean for the dozens of crypto companies in the UK, both those created by British and foreign companies that have chosen to be based in the UK?
Some UK-based companies say they are confident of meeting the Brexit challenge head-on. Either that, or they’re doing a good job putting on a brave face.
Tyler Smith, Sales and Business Development Manager at British cryptocurrency brokerage BC Bitcoin , said to Cryptonews.com what do you feel Financial Conduct Authority (FCA), the UK’s main financial regulator, has been “clear” with its intentions for the crypto sector.
Among the new FCA requirements, unveiled this year, is an operating permit system similar to Japan’s that will require crypto-asset providers to register with the regulator, as well as new anti-money laundering measures.
“We have been preparing for Brexit for some time. Recent cryptoasset guidelines released by the FCA in January 2020 have clarified the requirements for companies operating in the UK. “
And Smith added that this clear communication is expected to continue as the UK leaves the EU. According to him, there will likely still be ongoing cooperation and discussions, but there may be some differences in legalization in the future.
“As a UK company, we look forward to further regulation of the industry and the UK to take a proactive and leading role in regulating operating companies,” he said.
Others admit that they are cautiously watching the negotiations between the UK and the EU, preparing to react if something compels them.
Dmitri Litvinovich, Product Manager, CoinField He said his company was “doing business as usual.”
However, he added,
“No practical changes have been implemented as of now, due to the fact that there are a lot of uncertainties around Brexit. We keep our finger on the pulse of Brexit in terms of how this would affect our customers and internal operations. “
Other firms expressed clear discomfort at the idea of opening up to Cryptonews.com on Brexit, a political and economic hot potato since 2016.
Around half a dozen British crypto companies (usually very chatty) agreed to conduct interviews on the matter, only to pull out at the last minute.
A compliance officer for a major British crypto exchange requested anonymity, but told Cryptonews.com :
“This guy is like a loaded gun. Nobody knows what is happening and some people fear the worst. At best, regulatory uncertainty is brewing as the government isn’t really paying much attention to the crypto sector right now. But at worst, you might see companies struggling to establish themselves in EU member states. It’s a very clear possibility. “
A pressing issue centers on the passport, a legal framework that essentially allows financial companies that have been granted permission to trade in any EU country to trade freely in any other member state with a minimum of additional authorization.
Much of the British financial industry relies heavily on the passport – an EU Directive on Markets in Financial Instruments (MiFID) first formulated in 2004.
The passport has effectively allowed finance companies to jump around the union with relative ease in recent decades. But as regulators seem somewhat unsure about whether or not they want to classify crypto exchanges as financial institutions, the passport, like Brexit itself, is very much up in the air right now.
If the UK ever decided to classify exchanges as financial sector companies, theoretically all hell could break loose in the cryptocurrency sector.
Konstantin Anissimov, CEO of CEX.IO , said to Cryptonews.com ,
“From January 2021, Europe will no longer be covered by passports for financial companies. This is a potentially huge risk for financial companies providing services in the EU, as they may no longer be able to do so. For crypto companies, the situation is somewhat different as most countries have not finalized the regulations yet. “
Anissimov stated that CEX.IO, which is based in London, is looking for ways to continue trading in the European Union “by requesting regulation in France, the Netherlands, Germany and Austria.”
“These are the countries that have so far announced that they require companies to register with them. We have already submitted applications and are now in the process of obtaining the necessary licenses. “
The exchange EXMO It is based in Polegate, in the English county of East Sussex. Its Head of Development, Maria Stankevich, told Cryptonews.com that although Brexit “will not drastically affect EXMO’s business model”, the company is taking an interest in the situation in the English Channel in continental Europe.
“We are observing how individual European countries and the EU are trying to create a favorable but regulated environment for the development of the crypto industry. At the same time, they are working on a unified regulation for the union territory ”.
Central European nations, in particular, are drawing attention. And another option can be found in the west of Great Britain. She added,
“We see that now Germany and Switzerland are competing to create favorable conditions. Custody and banking services with support for crypto assets are being developed in both countries. Another possible option is Ireland, as it looks like a nice ‘bridge’ in case the legislation goes haywire. “
Ireland and its relationship with the United Kingdom have also come under scrutiny after the 2016 referendum. After Brexit, Northern Ireland’s 500 km border with the Republic of Ireland (ROI) will become the only land crossing between the UK and the EU. Politicians are desperately trying to find a solution that will help keep NI-ROI and UK-ROI relations as peaceful as they have been in recent days since the 1990s.
Stankevich admits: “Considering the struggle related to the new law on Northern Ireland, this option is not entirely clear either.”
Large crypto firms with a presence in both the UK and continental Europe will feel they have a natural advantage when it comes to hedging their Brexit bets.
Edward Drake, Chief Operating Officer and Compliance Officer eToro UK , said to Cryptonews.com that companies offering crypto derivative products could be “theoretically affected” by the loss of passport rights.
However, he added that he “expected the impact of Brexit to be limited” as “the specific real crypto assets being offered” on the eToro platform “are not currently within the scope of MiFID.”
Regardless, even the biggest players admit that they are willing to keep their options open.
“We continually monitor the crypto regulatory environment and closely follow developments around Brexit. eToro UK is part of the EToro Group broader, which is comprised of multiple entities in various geographies and as such we are well prepared for future regulatory changes. “
Change in the cards
It seems that whatever happens with Brexit, the consensus among companies operating in the UK is that a change is coming for the cryptocurrency sector, whether we like it or not.
CoinField CPO Litvinovich opined,
“My personal opinion is that Brexit will definitely impact the UK and EU crypto sectors. We are already facing many challenges caused by the fact that global regulators and even some institutional service providers try to avoid crypto-related involvement as they simply cannot keep up. Brexit will bring even more challenges to that space. “
“We are regulated by the EU authority and our main concerns relate to amendments to UK regulation and licensing, cross-border transactions and passport licenses. In my opinion, in the medium term, those matters face drastic changes which in turn affect the British crypto sector. I anticipate challenges for international companies that will show up in the UK market. This could lead to a limited offering of encryption services to UK residents. “
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