FCA Unveils Guidance on Cryptoasset Promotions Compliance

The Financial Conduct Authority (FCA) has unveiled a “finalised non-handbook guidance” document on Cryptoasset Financial Promotions. This release followed observed lapses in adherence to the new laws governing crypto asset promotions, which took effect on October 8, 2023.

On June 8, 2023, the pertinent legislation concerning cryptoasset financial promotions was enacted, and subsequent rules were published under the identifier PS23/6. Central to these rules is the stipulation that financial promotions must embody fairness, clarity, and accuracy to prevent misleading the public. In tandem with these final rules, a consultation on the proposed Guidance was also issued to ensure firms grasp the nuances of this requirement as it pertains to crypto asset promotions.

The consultation phase came to a close on August 10, 2023, paving the way for the FCA to review the feedback and finalize the Guidance which is detailed in Chapter 2 of the document. This finalised Guidance, published on November 2, 2023, doesn’t introduce new obligations but elucidates the existing regulatory obligations of firms. It emphasizes that adherence to this Guidance will be deemed as compliance with the relevant rule or requirement, although it’s not mandatory to follow the Guidance to achieve compliance.

A noteworthy mention in the document is the introduction of a secondary international competitiveness objective, activated on August 29, 2023. Although this objective wasn’t in effect during the publication of the final rules, its spirit was considered in PS23/6. This objective aligns with the broader policy to shield consumers while fostering beneficial innovation that potentially fuels long-term economic growth in the UK.

The Guidance underscores the primary aim of mitigating consumer harm by clarifying the expectations of firms, thereby promoting better compliance with the relevant rules. By doing so, it aims to prevent the erosion of trust in financial services that may arise from consumers not fully grasping the risks associated with cryptoasset purchases. Through clearer and fairer promotions, consumers are envisaged to make well-informed decisions that resonate with their risk profiles and needs.

The transition hasn’t been smooth, with reports indicating a dismal degree of compliance since the rules came into play. Some market participants have even expressed intentions to exit the UK market due to the perceived restrictive nature of these laws. The FCA, however, has been proactive in issuing multiple warnings and reminders since June 8.

Moreover, certain significant technical benchmarks have been slated for January 8, 2024. Amid these developments, the FCA’s Guidance also touches on the Travel Rule, formulated by the Financial Action Task Force, and its implementation in the UK on September 1.

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Crypto Exchange bitFlyer Implements Travel Rule for Crypto Asset Transfers

BitFlyer, a leading Japanese crypto asset exchange operator, announced the implementation of new regulations known as the travel rule, aimed at preventing criminal activities and enhancing security in the crypto industry. The company made this announcement on March 23, 2023, in line with updates to the Act on Prevention of Transfer of Criminal Proceeds and other relevant regulations.

Effective from Tuesday, May 30, 2023, around 15:00 JST, bitFlyer will begin implementing the travel rule for all corporate and individual customers who send and receive crypto assets through their services. The company will use the Travel Rule Universal Solution Technology (TRUST) to facilitate compliance with these regulations.

Currently, bitFlyer supports the travel rule solution for several crypto assets, including Bitcoin (BTC), Ethereum (ETH), and ERC-20 tokens such as BAT, LINK, MATIC, MKR, SHIB, and PLT. However, as of May 30, 2023, only the sending and receiving of BTC will be possible between bitFlyer and Coincheck. The availability of sending and receiving ETH and ERC-20 tokens will depend on the completion of Coincheck’s development.

Under the new regulations, customers can send crypto assets to exchange operators that can send and receive the legally required information notifications through TRUST. In Japan, the designated exchange operator is Coincheck, while outside Japan, customers can refer to the list of TRUST-compatible players provided on the Coinbase website. Additionally, customers can also send crypto assets to private wallets like MetaMask, which are not managed by exchange operators.

However, it should be noted that sending crypto assets to exchange operators registered with authorities in Japan or other legally designated countries and regions that cannot send and receive the legally required information notifications through TRUST is not supported.

BitFlyer emphasizes the importance of receiving crypto assets in compliance with the travel rule. Upon receiving crypto assets on their platform, bitFlyer will verify the notification information and may contact customers via email if clarification or additional information is required. Customers are advised to allocate sufficient time for the confirmation process and respond promptly to any communication from bitFlyer.

BitFlyer also mentions its commitment to improving customer convenience and may expand the travel rule solutions based on the practices of other crypto asset exchange operators. This implies that the methods for handling supported crypto asset transfers may be subject to change in the future.

The travel rule, a requirement put forth by the Financial Action Task Force (FATF) to combat money laundering and terrorist financing, mandates that exchange operators providing crypto asset transfers must provide specific information about the sender and recipient to the receiving exchange operator.

BitFlyer, as a crypto asset exchange operator and a type-1 financial instruments business, is dedicated to the development of the crypto asset and web3 industries. The company aims to provide a secure environment for customers to trade crypto assets and contribute to the further advancement of the crypto industry.

Customers are encouraged to refer to the provided references and resources for additional information about the travel rule, including the Japan Virtual and Crypto Assets Exchange Association (JVCEA) and the Financial Services Agency (FSA).


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Crypto Service Providers Willing to Embrace FATF Travel Rule, Study Shows

The Travel Rule, which now governs service providers in the digital currency ecosystem, is arguably not a source of concern as a new report from Notabene shows many firms in the space are in compliance already.

Per the report, which surveyed 56 businesses across North America, Asia Pacific, Europe, Africa, and the Middle East, as many as 70% of businesses are either practising the rule or planning to complete their compliance in Q1/Q2 2022. 

The Travel Rule demands businesses involved in cash or money transfers to report funds transactions of $1,000 and above to authorities, a move that is expected to curb money laundering and terrorist financing. With the emergence of Bitcoin (BTC) and altcoins, the Financial Action Task Force (FATF), an international watchdog responsible for developing the rule, has published guidelines and revisions to fit the evolution in the nascent digital currency ecosystem.

Per the Notabene report, about one-third of firms (31%) completely or partially adhere to the regulation. The report also revealed that 92% of respondents have internal compliance and legal departments, and 78% of these businesses consider these teams able to guarantee the company acts in accordance with external rules and internal controls.

In all, crypto-assets service providers are shown to be in broad compliance with many who have no technical expertise to implement the rules exploring other protocols that can be adopted. 

Many critics have often dwelled on how cryptocurrency exchanges and other service providers have backed illegal use of Bitcoin and other coins with pseudo-anonymous provisions. However, platforms like Coinbase Global Inc, Binance, and Huobi have notably implemented transaction monitoring tools, a move that suggests players in the digital assets ecosystem are not anti-regulation.

From Notabene’s report, the broad compliance of players in the space to the Travel Rule can help them become active partners in shaping the future of the crypto payment industry.

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Crypto.com will provide liquidity to Finxflo in new partnership

Cryptocurrency exchange platform and card issuer Crypto.com will be providing liquidity in a new partnership with Singapore-based hybrid liquidity aggregator Finxflo.

In an announcement today, Crypto.com said it would be joining Finxflo as the firm’s first liquidity provider, reportedly allowing the exchange to increase its transaction volume and mitigate market volatility. In general, liquidity aggregators may allow crypto traders to take advantage of deeper liquidity pools and more advantageous price execution.

“We want to eliminate the hurdles associated with crypto trading, and streamline the experience for new retail investors,” said Finxflo CEO James Gillingham. “As we continue to deepen our liquidity, we can provide the best possible price levels across liquidity pools for the institutional investors to price-sensitive retail traders.”

A crypto platform with adequate or high liquidity and competitive market pricing may attract additional traders returning for more transactions, which in turn provides liquidity to other traders acting as counterparties. Finxflo says it is a hybrid liquidity aggregator, aimed at offering competitive pricing for centralized finance and decentralized finance projects. This model reportedly increases the speed of transactions and reduces the likelihood of market manipulation.

Onchain Custodian will reportedly be providing crypto custody services for Finxflo in order for the platform to comply with anti-money laundering regulations under the Financial Action Task Force’s Travel Rule. Among other directives, the rule requires crypto exchanges and custodial wallet providers to disclose customer information when facilitating a trade of $1,000 or more.