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Financial Regulation International June 30, 2021


Cryptoassets are used increasingly as stores of value, means of making payments in domestic and cross-border transactions(including person-to-person (“P2P”) payments), and as enterprise solutions for speedier execution of trades in financial instruments or other commerce. Their emergence from the work of Satoshi Nakamoto to real-world applications has prompted attention from legislatures, regulators including law enforcement agencies, service providers and adopters.

The UK, as well as other nations, has used its legislative and regulatory authority to attract crypto-businesses and other financial-services innovators to its shores. Because some nations seek to entice financial innovations and others remain sceptical, tensions will arise between these two camps. Tensions create uncertainty in markets and opportunities for regulatory arbitrage.

Regulating cryptoassets necessarily implicates appreciating their current and potential utilities. When regulators approach a cryptoasset or question how the asset operates, their characterisation of the asset may depend on how the cryptoasset may be marketed or used. Additionally, regulatory decisions may depend on traditional differences between regulation for the sake of consumer protection (including licensure and prudential regulation), criminal law, domestic monetary control and policy, and national security (including anti-money-laundering and counter-terrorism-finance purposes). Cryptoassets regulatory decisions are also influenced by the terminology used to explain comparable, non-crypto products and services.

The UK’s complete separation from the EU on 31 December 2020 provides fresh opportunities for innovation in cryptoassets markets and their regulation on both sides of the English Channel. This article looks at the foundational agreements that influence Post-Brexit regulation and uses them to analyse recent policy and judicial actions relating to cryptoassets in the UK and other EU member states.

The second part of this paper provides background on EU laws that the UK will remain obligated to observe post-Brexit. What is commonly known as “Brexit”, the UK’s exit from the EU, officially began on 31 January 2020 and ended on 31 December 2020. This transition period (known as the “Implementation Period” or “IP”) was regulated by the EU (“Withdrawal Agreement”) Act. Post-Brexit relations between the UK and the EU are governed by several Agreements signed by the Parties and negotiated following the UK’s 2016 referendum on membership. Among these forward-looking Agreements is the Trade and Cooperation Agreement[hereinafter “the Trade Agreement”]. For a better understanding of its effect on providers of cryptoassets, we discuss the UK’s position towards the body of EU law that the UK has agreed to follow after Brexit.

The third and fourth parts frame issues related to internal law decisions in the UK, France, and Italy as examples of this complex of internal (or national) and EU law that is emerging. The final part provides some observations on what the Trade Agreement and developments in internal and EU laws – whether legislative, regulatory, or judicially made law – may mean to the opportunities for wider adoption of cryptoassets in the EU, UK, and, of course, the US. It also shares some questions to be explored in future projects.