Regulatory uncertainty has been a way of life for crypto exchanges since the get-go. Running a crypto-related firm is like walking through a swamp in many respects – you never know what is waiting underfoot at the next step.
But this has never been more the case, it would seem, than in the UK in late 2020.
On paper, Brexit has officially already taken place. But, in reality, the stinky stuff is yet to hit the fan: The UK’s de facto exit from the European Union will take place in January 2021 – after the official “transition period” draws to a close.
2020 was supposed to be a year for bargaining with the EU, forging post-union trade deals and “getting Brexit done,” in the words of UK Prime Minister Boris Johnson, who won a general election almost a year ago with this very slogan.
Then came the coronavirus pandemic – and all of a sudden Brexit got pushed way back to the outer fringes 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 now starts to draw dangerously near, pressing questions need to be answered fast for all sorts of business sectors.
But what does this all mean for the scores of crypto firms in the UK – both those set up by Brits the overseas companies that have chosen to headquarter themselves in the UK?
Optimistic outlook?
Some UK-based firms say they are confident of facing the Brexit challenge head-on. Either that, or they’re doing a good job of putting on a brave face.
British crypto brokerage BC Bitcoin’s Sales & Business Development Manager Tyler Smith told that he feels the Financial Conduct Authority (FCA) – the UK’s top financial regulator – has been “clear” with its intentions for the crypto sector.
Among the FCA’s new requirements, unveiled this year, is a Japan-like operating permit system that will require cryptoasset providers to register with the regulator, as well as new anti-money laundering measures.
Smith stated,
“We have been preparing for Brexit for some time. The recent cryptoasset guidelines published by the FCA in January 2020 have clarified the requirements for firms operating in the UK.”
And Smith added that this clear communication will hopefully continue as and after the UK leaves the EU. According to him, there will likely still be continued cooperation and discussions but there may be some differences in legalization moving forward.
"As a UK business, we look forward to increased regulation of the industry and the UK taking a proactive and leading role regulating the companies operating," he said.
Others admit that they are keeping a cautious eye on the UK-EU negotiations, preparing to react if anything forces their hand.
Dmitri Litvinovich, Chief Product Officer at CoinField, said his firm was “getting on with business as usual.”
However, he added,
“No practical changes have been implemented as of now, due to the fact that there are many uncertainties around Brexit. We keep our finger on the pulse of Brexit in terms of how this would affect our clients and internal operations.”
Some half a dozen (normally very talkative) British crypto firms agreed to conduct interviews on the matter, only to pull out at the last minute.
“This subject is like a loaded gun. Nobody knows what is going on and some people fear the worst. At best, regulatory uncertainty is brewing as the government isn’t really paying the crypto sector much mind now. But at worst, you might see companies up sticks to set up shop in EU member states. It’s a very distinct possibility.”
One pressing issue centers around passporting, a legal framework that essentially lets financial firms that have been granted permission to trade in any EU nation to trade freely in any other member state with a bare minimum of extra authorization.
Much of the British financial industry relies heavily on passporting – an EU Markets in Financial Instruments Directive (MiFID) first formulated in 2004.
Passporting has effectively allowed financial companies to hop around the union with relative ease in the past few decades. But as regulators seem somewhat unsure as to whether or not they want to classify crypto exchanges as financial institutions, passporting – like Brexit itself – is very much up in the air right now.
Should the UK ever decide to classify exchanges as financial sector companies, all hell could theoretically break loose in the crypto sector.
“From January 2021, Europe will no longer be covered by passporting for financial companies. This is a potentially huge risk for financial companies that are providing servi
