The new financial promotions regulations imposed by the UK Financial Conduct Authority (FCA) are creating significant challenges for crypto firms, according to Delphi Labs general counsel Gabriel Shapiro. In a recent post on X, Shapiro expressed his concerns about the feasibility of strict compliance with these regulations. He believes that only centralized exchanges and a few established DeFi projects may have the resources and capacity to meet the requirements. However, even these entities could face obstacles due to time constraints.
Shapiro further emphasized the financial burdens associated with compliance. He estimated that each project would need a minimum of $500,000 for legal counsel and development expenses. Allocating such significant funds could potentially require reallocating resources from other areas, posing a challenge for many crypto firms.
While Shapiro acknowledged the regulations’ potential to protect investors, he argued that they were incompatible with the nature of the crypto industry. Peer-to-peer technology and the absence of intermediaries or custodians in many crypto transactions make it difficult to apply traditional regulatory frameworks. The regulations’ focus on centralized entities and custodial services fails to recognize the decentralized and peer-to-peer nature of much of the industry.
The FCA implemented a revised financial promotions regime, which will come into effect in October. These regulations impose strict guidelines on how crypto firms can market their services to residents of the United Kingdom. Notably, one consequence of these regulations is the prohibition of crypto referral programs and other marketing restrictions.
Despite the limitations, the FCA has established legitimate avenues for companies to market crypto assets to UK consumers. These pathways include communication by an authorized individual, communication by an unauthorized individual with approval from an authorized person, or contact by a company registered under the FCA Money Laundering Regulations (MLRs). These avenues provide some flexibility for compliant marketing strategies within the regulatory framework.
The upcoming regulations have already compelled several crypto firms, such as Luno and PayPal, to alter their approach to services in the UK. These companies are now planning to restrict certain services within the jurisdiction, aligning with the new regulations. This shift demonstrates the significant impact the regulations are having on the crypto industry’s operations in the UK.
The compliance challenges brought on by the new UK financial promotions regulations are placing substantial burdens on crypto firms. The high costs of legal counsel and development, coupled with the incompatibility of the regulations with the decentralized nature of the industry, create significant obstacles. While the FCA has allowed for some legitimate marketing avenues, firms still face constraints and limitations in promoting their services to UK consumers. It remains to be seen how the industry will adapt and navigate these regulations while continuing to innovate and grow.