The great British balancing act: Operating in a brave new world of crypto regulations.

New IDnow whitepaper, ‘Preparing for the known: Operating in a world of crypto regulation’, explores the challenges facing UK crypto exchanges in 2023 and beyond.

In April 2022, the UK government announced plans to make the UK a global hub for crypto asset technology and investment. This was a bold proclamation, especially considering how painfully prohibitive the UK crypto money laundering registration can be, and how difficult competing on the global stage will soon become as UK crypto exchanges juggle domestic and European regulations, such as MiCA or TFR.

With upcoming regulations from the EU and the UK in 2023, the crypto asset market is about to receive a level of protection and accountability that it has never experienced. 

But, will bringing cryptocurrency into the mainstream and adding stability and accountability have a positive effect on crypto exchanges, or will organizations decide to trade elsewhere? 

Riding the crypto waves and crashes. 

In their short existence, cryptocurrencies have experienced an extremely high level of volatility. The price of Bitcoin broke $1,000 for the first time in 2017, and rose to nearly $20,000 in the same year, only for the price to dip to nearly $3,000 within the space of a few months. In 2022, the crypto market is at the mercy of considerable bull and bear markets, although many crypto users are predicting that this will change as the crypto market matures. 

A considerable volume of crypto assets is used by bad actors for money laundering, fraud and payment for other nefarious activities because it can be transferred quickly and with a high degree of privacy. Indeed, in the early days, cryptocurrency platforms did not require customers to undergo ID verification or background/credit card checks. In fact, some still don’t. 

Brexit and cryptocurrency. 

As the UK’s laws regarding cryptocurrency are a) not particularly clear, and b) do not offer any protection or authority outside of the UK, it is very likely that UK consumers may instead go to offshore providers, which UK regulators have no authority over. In the internet era, where consumers can access services of international platforms as easily as domestic, the FCA, alongside other financial regulators from around the world, face an uphill battle to ensure its citizens are not being targeted by foreign crypto exchanges. 

Europe to steady crypto ship. 

There were two major developments in EU crypto regulation in 2022. The first was an extension of the European Transfer of Funds Regulation to include crypto assets, meaning the sender and beneficiary of all applicable or centralized crypto transactions will need to be identified. 

While those in the crypto community that relished the anonymity of decentralized transactions are likely to be unhappy with the development, others see it as a sign that regulation is finally catching up with the industry and bringing some much-needed clarity for crypto asset service providers.  

Putting the KYC into crypto. 

So, how feasible is the task of not only taming UK’s crypto Wild West, but building a world-leading crypto hub?  

Underpinning many of the debates regarding regulations is the need for crypto exchanges to be able to identify who their customers are. In an industry where anonymity is often touted as one of its biggest selling points, this will be no easy feat. Therefore, it’s important to not only offer secure customer onboarding, but for the process to remain as convenient as possible. 

Interested in learning more about crypto? Check out our Fintech Spotlight Interview with Alex Pillow, Director, Market Strategy at Moody’s Analytics KYC.

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The great British balancing act: Operating in a brave new world of crypto regulations. 1

Jody Houton
Content Manager at IDnow
Connect with Jody on LinkedIn

Preparing for the known: Operating in a world of crypto regulation.

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