After Brexit, the UK is no longer a part of the European Union. Consequently, UK-based crypto firms are not permitted to actively participate in or operate in European markets. With the European Union’s Markets in Crypto-Assets (MiCA) regulation having been passed, UK-based crypto-asset service providers (CASPs) are classified as “third-country firms” and must adhere to strict compliance requirements to serve the European market.
To continue operating in the European markets, the UK-based crypto firms should incorporate certain approaches, which will be explained further.
Operating Models for UK Firms
UK-based firms should incorporate one of these approaches into their work to become legally acceptable in Europe.
- Establish an EU Subsidiary: This is the most common pathway that a UK-based crypto firm can use to practice legally in the European Union countries. The firm can establish itself as a corporate entity within an EU member state and secure a MiCA license from that country’s National Competent Authority (NCA). Once the permission is granted, the MiCA passporting rights allow the firm to offer its services across all 27 EU member states.
- White Labelling or Partnerships: A UK firm can make a partnership with another firm that is already practising in the European Union. While the European partner handles the compliance, custody, and regulatory execution within the EU, the UK firm can provide backend services in other aspects of its work and act as a B2B partner.
- Reverse Solicitation: In reverse solicitation, an EU resident initiates the trade completely on their own, without any prior marketing, promotion, or solicitation from the UK firm. However, this provision can be used only in exceptional situations, as the European Securities and Markets Authority does not encourage its use as a blanket strategy for UK firms to operate in the EU.
All these methods can help UK-based crypto firms to enter the EU market, even with the strict MiCA rules that restrict them from functioning in the EU.
Navigating the Regulatory Landscape
With the passage of the EU’s Markets in Crypto-Assets (MiCA) regulation, navigating the regulatory landscape is a big challenge for UK -based crypto firms. With the passing of the MiCA regulations, the transitional phase of MiCA grandfathering is now over. All CASPs must now operate under full MiCA authorization.
While the MiCA rules apply to the EU states, the UK has developed its own distinct crypto regime. Operating in both regions requires separate management, compliance, and capital allocation teams to satisfy both the Financial Conduct Authority (FCA) and EU regulators. One major restriction for UK firms in the EU states is the restriction on advertising their products and services in the European Union. Major platforms, including search engines and ad networks, have restricted crypto-related ads in the EU strictly to licensed CASPs.
More About MiCA
MiCA is the European Union’s comprehensive legal framework for regulating crypto-assets and their service providers across all 27 member states. It unifies the previously fragmented national laws into a single, standardized rulebook designed to protect investors, maintain market integrity, and foster innovation.
Under this regulation, CASPs should obtain a license or passport from the regulator to operate in the EU. Strict reserve and capital requirements are imposed on issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs) to protect consumers from sudden de-pegging or default. To ensure consumer protection, MiCA mandates that the issuers of tokens must publish detailed whitepapers outlining the project’s risks, mechanics, and rights, giving investors standardized information. MiCA focuses on market abuse prevention by establishing rules to prohibit insider trading, market manipulation, and unlawful disclosure of inside information within crypto markets.
Crypto Regulations in the UK
Unlike the MiCA regulations in the EU, the UK does not have a specific law or regulatory norm that governs its crypto landscape. In the UK, cryptocurrencies are regulated similarly to traditional finance. However, the UK’s crypto rules overlap significantly with MiCA’s goals of consumer protection and market integrity. The major crypto regulatory frameworks used in the UK are given below.
- The FCA Rulebook: in the UK, crypto firms are governed by the Financial Conduct Authority (FCA) under the same rules that apply to securities firms, traditional banks, and payments companies. Exchanges and custodians face stringent operating standards based on these rules.
- Financial Promotions: The regulatory organizations in the UK mandate that firms must provide clear risk warnings and undergo a 24-hour cooling-off period for first-time investors. These firms should follow such rules in terms of advertising or marketing their financial products and services.
- Stablecoin Oversight: The rules in the UK also mandate that stablecoin issuers operate under strict reserve and operational requirements monitored closely by the Bank of England and the FCA.
- Compliance with KYC/AML Rules: The rules in the UK mandate that any crypto firm operating or serving users in the UK must register with the FCA and comply with the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017.
The Bottom Line
The question of whether a UK-based crypto payment company will succeed in the context of the new MiCA rules brings us to the conclusion that, in the EU, such companies are restricted from serving. The MiCA rules are aimed at bringing regulatory clarity among crypto users in the EU, and since the UK is not part of the EU, the rules are different here. Understanding the ways to navigate the regulatory ecosystem is necessary to bring UK-based crypto firms to function in the EU.