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The UK’s financial regulator reminds crypto-asset firms that unregulated promotions are coming to an end, Denmark penalises a bank for trading in crypto and Thailand moves to ban crypto staking.
The UK Financial Conduct Authority (FCA) has written to crypto-asset firms urging them to get compliant before the launch of new financial promotion rules on October 8 this year.
In January 2022, the government published a consultation response setting out its intention to bring crypto-asset promotions into the scope of the Financial Services and Markets Act.
Finalised in a policy statement this year, the new legislation will mean that all firms marketing crypto-assets to UK consumers, including firms based overseas, must comply with FCA rules on financial promotions.
The FCA said its definition of a financial promotion is “broad” and applies in a “technologically neutral” way, covering apps, websites, social media and other online and offline advertising.
When the new rules go live, there will be four “routes” to a compliant crypto-asset promotion.
The first is for the promotion to be communicated by an “authorised person”, and the second is by an unauthorised person who has obtained approval from an authorised person.
The third route is that the promotion is communicated by a firm that is registered with the FCA under the 2017 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations.
And the fourth route is for promotions that have an exemption under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
As the FCA reminded firms, non-compliant promotions will be in breach of Section 21 of the Financial Services and Markets Act 2000 — a criminal offence that is punishable by up to two years in prison, an unlimited fine or both.
“We will take robust action against persons illegally promoting to UK consumers,” said Victoria McLoughlin, a head of department on digital assets supervision, policy and competition at the FCA.
“This may include, but it is not limited to, placing firms on our warning list, requesting takedowns of websites, social media accounts, apps, promotions and enforcement action.”
Danish bank penalised for crypto trading
In Denmark this week, the Financial Supervisory Authority (FSA) has issued a ruling against Saxo Bank, ordering it to cease trading in crypto-assets on its own account.
After an investigation, the FSA ruled that proprietary crypto trading lies outside the scope of legal business activities that Danish financial institutions are permitted to engage in, as per the Financial Business Act.
As such, the FSA has also ordered Saxo Bank to divest of any crypto-assets that it currently holds on its own account.
The FSA noted that Saxo Bank offers several crypto-based investment products to customers, including crypto exchange-traded funds (ETF) and exchange-traded notes (ETNs).
Although the offer of these products is permitted, the FSA said that these products are currently not regulated and do not afford investors the same protections as regulated products.
“Unregulated trading in crypto-assets can create distrust in the financial system, and the Danish FSA considers that it would be unfounded to legitimise trading in crypto-assets,” it said.
From the FSA’s ruling, it appears that Saxo Bank was trading in crypto-assets to “hedge” its exposure to “other financial products”, although these products were not named.
When the EU’s Markets in Crypto-Assets (MiCA) regulation comes into force in December 2024, crypto-asset trading will become a regulated activity in Denmark.
But until then, the FSA said it must ensure that licensed financial institutions engage only in the permitted activities that are outlined in the Financial Business Act.
Another market shuts the door on staking
Earlier this week, VIXIO reported that Singapore — a key market for crypto-assets — is set to ban staking as part of its latest amendments to the country’s Payment Services Regulations.
As noted by the Monetary Authority of Singapore (MAS), crypto staking offers yields that are “much higher” than that of traditional investment products, and are therefore attractive to retail investors.
However, crypto staking arrangements are often complex and their mechanism for generating high yields unclear, therefore creating opportunities for bad actors to take advantage of retail investors.
In Thailand, the Securities and Exchange Commission (SEC) is preparing for a similar ban on staking.
This week, the SEC reminded firms that, as of August 30, digital asset service providers will be prohibited from accepting deposits from investors on the promise that interest will be paid on those deposits.
The SEC’s new rules were first passed in September last year, giving service providers a year to prepare for them to come into effect.
As in the Singapore proposals, Thailand’s new rules do not prohibit individual investors from using staking services directly, but intermediaries are prohibited from offering staking-as-a-service.
Also, as in Singapore, Thailand’s new rules will prohibit digital asset service providers from offering lending services to customers.
Stablecoins old and new
Finally, this week the co-founders of bankrupt crypto hedge fund Three Arrows Capital (3AC) announced plans to launch a new stablecoin for customers of OPNX, their newly launched crypto exchange.
As VIXIO has written previously, OPNX is the latest project from Su Zhu and Kyle Davies, the crypto traders and investors who, in their own words, turned $1.2m into $4bn at 3AC before the firm “went bust”.
Their new stablecoin, known as oUSD, allows users to stake their crypto as collateral for a USD-pegged token that can be used for margin trading on OPNX.
Meanwhile, this week the second-largest stablecoin issuer, Circle, announced that it is considering launching operations in Japan to take advantage of a new regulatory regime that came into effect last month.
In June last year, as covered by VIXIO, Japan became the first country in the world to pass specific legislation to regulate stablecoins.
