As of next week, crypto exchange OKX will implement important changes for retail users in the U.K., in order to comply with regulations introduced by the country’s Financial Conduct Authority (FCA). According to a statement, the exchange is developing “a new user experience that is compliant with the requirements set out in the Financial Promotions Regime.”
Following the implementation of these regulations, both new and existing U.K. customers must pass two questionnaires to confirm their level of understanding:
- Client categorisation - to profile the investor type and confirm an understanding of the risks involved.
- Appropriateness assessment - a series of questions about investing in cryptoassets.
Those who fail to complete the questionnaires or demonstrate a lack of knowledge regarding the risks of investing will be refused an exchange account.
Even though it may seem reasonable to assure a base level of awareness, rather than deal with the claims of dissatisfied traders who have lost their money, some crypto users have expressed their discontent with the idea, even calling it “financial apartheid.”
However, it is worth noting that the method is not completely reliable, as a quick internet search can find the 'correct' answers in seconds.
The FCA first unveiled the Financial Promotions Regime in June 2023, with enactment happening in October that year. The rules control the promotion and advertising of crypto assets to U.K. customers. Apart from questionnaires, the requirements also include the implementation of clear risk warnings and a mandatory 24-hour ‘cooling-off’ period for first-time investors, during which they will be unable to trade or purchase crypto. Those illegally promoting crypto to U.K.-based consumers are subject to an unlimited fine and/or 2 years in jail.
“Our rules will help alert consumers to the risks from cryptoassets by differentiating the journey a consumer takes when looking to invest in these high-risk investments, compared to the journey undertaken when investing in a mainstream investment.” - Policy Statement
OKX had already made some adjustments to its business to comply with the regulations back in October, including a reduced token offering and clearly displayed risk warnings. Rival exchange Binance has also had compliance issues over the new rules, and had to briefly halt the onboarding of new users in October.
The U.K. government has been on a legislation spree since adding crypto assets to the Financial Services and Market Bill last Summer. In early September, the country adopted ‘Travel Rule’ regulations aimed at improving market transparency. At the end of October, the Treasury published its proposals for future regulation of crypto asset activity, with regulators published more detailed plans for the country’s upcoming stablecoin regulation in November.
The government has said it will put several crypto-related activities (which, for some reason, do not cover DeFi) under the same regulations that govern banks and other financial companies. The regulation is expected to be presented to Parliament in 2024.
For now, crypto companies are voluntarily complying with the strict and multiplying regulations in the country. However, by increasing the cost of compliance for firms and creating barriers to user adoption, the severe guidelines might eventually damage the market's dynamism and further development.