How the new UK Government’s crypto regulations could affect retail
The UK is introducing new regulations for cryptocurrencies and stablecoins, intending to make the country a preferred destination for the crypto industry. With the new government’s phased approach to crypto regulations, the plan is to strike a delicate balance between fostering innovation and ensuring consumer protection. As the country positions itself as a global hub for crypto technology and investment, various sectors, including retail, e-commerce, healthcare, and gambling will feel the ripple effects of these regulatory changes.
Compliance Requirements
Crypto companies will need to comply with the Financial Conduct Authority’s (FCA) authorization, anti-money laundering (AML), and Know Your Customer (KYC) regulations. According to ReadWrite’s Kane Pepi, cryptocurrencies offer privacy and anonymity at the top UK crypto online casinos, which appeals to many players. However, the new mandatory KYC regulations effectively end full anonymity for crypto transactions. This means that users of regulated platforms will need to provide identifying information, although it’s not yet clear if this will affect crypto casinos, as they are almost always registered outside the UK.
The retail sector dealing with cryptocurrencies is not exempt from collecting and verifying customer information as well as implementing strict AML and counter-terrorist financing (CTF) policies and procedures. This requires the monitoring of crypto transactions and reporting any suspicious activities, implementing ongoing customer monitoring, and maintaining detailed records for at least five years after the end of the business relationship. Retail companies must also submit reports to the FCA as needed. These requirements aim to create a safer environment for retail consumers engaging with crypto assets while also enabling businesses to innovate responsibly.
Consumer Protection Measures
The regulatory framework for crypto assets focuses on consumer protection by improving transparency, and fairness. Retail businesses dealing with crypto must adhere to the new consumer protection measures, including:
- Retailers are required to provide clear and accurate product information about crypto assets and need to ensure pricing transparency. This includes the disclosure of all fees and charges.
- Retailers dealing with cryptocurrencies must ensure that any promotional material and communication includes clear risk warnings. These warnings must include and inform consumers that cryptoassets are high-risk investments.
- Proper procedures regarding the handling of customer complaints are required. This must include having a system to log any complaints, investigate them, and provide a timely response to all complaints.
While the new regulations are mainly aimed at crypto businesses like custodian wallet providers and crypto exchanges, the scope of regulated activities includes the retail sector who accept cryptocurrencies as payment.
Marketing and Promotions
The new rules and regulations cover how crypto companies can advertise and promote their products in the UK. This is to protect consumers from any misleading ads and to prevent market abuse. All crypto promotions must be fair, clear, and not misleading. However, promotions must be communicated or approved by the FCA or an FCA-authorized firm. This is to ensure that only compliant businesses can promote crypto products to retail consumers. Additionally, the FCA requires businesses to apply Consumer Duty to their marketing efforts. This essentially means that retailers and other businesses must ensure that promotions are designed to support good consumer outcomes and it should not exploit any “consumer vulnerabilities.”
The impact on retail businesses means adapting to stricter compliance requirements, which could potentially involve additional costs, such as redesigning promotional materials to meet FCA requirements and operational changes. However, these measures also provide an opportunity to build greater consumer trust allowing retailers to differentiate themselves in a competitive market by building a long-term relationship with consumers through transparent, compliant, and ethical marketing practices.Operational Adjustments
With the regulatory changes to marketing and promotions, this requires businesses to implement new processes. These changes are necessary because the new regulations represent a significant shift in how crypto assets can be marketed and sold to UK consumers. The FCA has made it clear that they expect full compliance and are prepared to take “robust action” against non-compliant firms. What does this mean for retailers?
Retailers dealing with crypto will need to carefully assess their current practices and implement new compliance measures. These regulations apply to any business that accepts cryptocurrency payments or promotes crypto-related products and services, like an online casino, for example. Under the AML, KYC, and CTF processes, records of all crypto transactions are required and should include:
- Dates of transactions
- Amounts in cryptocurrency
- Corresponding GBP values at the time of the transaction
- Details of counterparties
- Purpose of transactions
- Wallet addresses
The duration of the record-keeping must be kept for 5 years.
Stablecoin Regulation
The UK is in the process of developing regulations for stablecoins, specifically those backed by fiat currencies. If retailers are considering accepting or using stablecoins for payments, they should be prepared for new regulations in this area.
The proposed regulations state that fiat-backed stablecoins will be regulated under the Payment Services Regulations 2017 and the Financial Services and Markets Act 2000. Any business, including retailers and e-commerce platforms, involved in payment services will need to be authorized by the FCA. This means that systemic stablecoin payment systems may also be subject to Bank of England (BoE) supervision.
For e-commerce platforms and retailers accepting international crypto payments, a separate pathway is being considered for overseas-issued stablecoins to be used for payments in the UK. These regulations are still evolving as the UK government is considering how to regulate the use of overseas stablecoins in the UK payment chains, which the government finds challenging due to regulations that differ per jurisdiction.
Conclusion
The new UK regulations for stablecoins and cryptocurrencies appear to have multiple objectives, however, the main focus seems to be on protecting consumers while also regulating the crypto industry. This approach seems to be about creating a balanced framework that allows for innovation, while also reducing risks associated with the volatility cryptocurrencies are known for. While these regulations are mainly aimed at financial services and crypto firms, they will indirectly impact retailers by transforming the way in which crypto transactions occur. Retailers will need to stay informed as the regulatory changes are enforced and adapt their practices accordingly.
