2023 Cryptoasset Regulation Trends: EU, UK, and US

The Path Forward for Cryptoasset Regulation in 2023: EU, UK, and US Perspectives

As the cryptoasset market grows and gains popularity worldwide, governments and regulatory bodies in the European Union, the United Kingdom, and the United States grapple with implementing effective and balanced legislation. In 2023, significant regulatory developments are taking place in each region that will shape the path forward for the cryptoasset industry.

EU: MiCA Regulation and its Impact on the Cryptoasset Community

The EU has pioneered cryptoasset regulation by introducing the Markets in Crypto-Assets (MiCA) Regulation. Published in the Official Journal of the European Union on June 9, 2023, MiCA consists of two regulations: Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain cryptoassets and Regulation (EU) 2023/1114 on markets in cryptoassets.

MiCA aims to provide a harmonised regulatory framework for cryptoassets at the EU level. It covers cryptoassets not regulated by existing financial services legislation, including asset-referenced tokens (ARTs), electronic money tokens (EMTs), and other cryptoassets. MiCA's provisions focus on transparency, disclosure, authorisation, and supervision to protect users and investors from potential risks such as market manipulation and money laundering.

One key aspect of MiCA is its distinction between different types of cryptoassets. ARTs are cryptoassets that maintain a stable value by referencing other values, including fiat currencies. Conversely, EMTs are used as a means of payment and maintain a stable value by referring to a single legal tender fiat currency. The third category, “other cryptoassets,” covers all remaining cryptoassets not falling under ARTs or EMTs, such as utility tokens and familiar digital currencies like Ether and Bitcoin.

MiCA will apply to all EU member states as of December 30, 2024. This transitional phase allows cryptoasset businesses to adapt to the new requirements and facilitates a level playing field while removing regulatory fragmentation.

UK: Marketing Restriction on Cryptoassets and its Implications

In the UK, the government is taking measures to regulate the marketing of cryptoassets. Starting October 8, 2023, the marketing of cryptoassets will be subject to a general restriction on financial promotions. This restriction, brought forward under the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023, criminalises rule breaches.

The restriction applies to communications capable of having an effect in the UK, even if communicated from offshore. The UK Financial Conduct Authority (FCA) has released new rules under Policy Statement 23/6 (PS23/6) that apply to authorised persons and MLR-registered firms. Authorised persons are firms authorised under Part 4A of the Financial Services and Markets Act 2000, excluding those authorised under the Electronic Money Regulations 2011 or the Payment Services Regulations 2017. 

Authorised persons and MLR-registered firms can communicate financial promotions relating to cryptoassets but must comply with the new rules, including a cooling-off period for first-time investors, client categorisation, and an appropriateness assessment. However, unauthorised persons or MLR-registered firms will face restrictions and can communicate cryptoasset financial promotions only if they meet specific FPO exemptions.

This restriction aims to prevent the marketing of cryptoassets outside of narrow exemptions or by authorised entities to protect investors and prevent potential consumer harm. Breaching the restriction is punishable by imprisonment, fines, or both.

US: Upcoming Cryptoasset Regulations in 2023

In the US, policymakers are discussing upcoming regulations to address various aspects of the cryptoasset market. Some key areas under consideration are:

1. Wash Sales: The 'Wash Sale Rule' applies to stocks, mutual funds, and other securities within the US tax regime. It disallows deductions on losses if the security is repurchased at a lower price immediately after being sold at a loss. While this rule does not apply to digital currencies under current IRS regulations, policymakers are considering passing legislation to address this loophole.
2. Cryptoasset Banking and Exchange Regulations: In 2022, US agencies discussed potential laws and regulations for digital currencies. The public may expect new rules on bank custody of cryptoassets, stablecoin issuance, holding digital currencies on a balance sheet, and cryptoassets as collateral for bank loans. The possibility of legalising the sale of digital currencies by banks and financial service companies is also being explored.
3. Accounting Disclosure Requirements: The Financial Accounting Standards Board and the Securities and Exchange Commission are discussing new accounting and disclosure requirements for holding cryptoassets. These rules will be released in 2023 to enhance transparency and accountability in cryptoasset transactions.

Addressing Regulatory Gaps: Ensuring Competitiveness for the UK and US

As the EU, the UK, and the US navigate the path forward for cryptoasset regulation in 2023, it is evident that the EU is leading the way with the implementation of MiCA. This new regulatory framework provides a harmonised approach and seeks to protect users and investors while promoting innovation and fair competition in the cryptoasset sector.

While the UK is taking measures to regulate the marketing of cryptoassets, the US is still grappling with various regulatory aspects, leaving uncertainties for businesses and investors. The lack of clear and transparent regulations in the UK and the US could hamper the growth of their cryptoasset industries and drive companies and investors to seek opportunities in the more regulated EU market.

In conclusion, the UK and the US must address these regulatory gaps promptly to remain competitive and attractive for cryptoasset businesses. Harmonised and balanced regulations, like MiCA, provide much-needed clarity and certainty for the cryptoasset community, ensuring responsible growth and protecting investors' interests.

If you are keen to learn more about upcoming cryptoasset regulations and how they may affect you, please do not hesitate to contact us to arrange a meeting.