UK Eases Regulations on Crypto Assets Staking: A Quick Overview of Relevant Content

Source: FinTax

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The UK Treasury has revised the Financial Services and Markets Act (FSMA), which came into effect on January 31. This revision excludes cryptocurrency staking from collective investment schemes. Under this change, staking cryptocurrencies such as Ethereum (ETH) and Solana (SOL) will only be regarded as part of the blockchain validation process and will no longer be subject to the regulatory requirements applicable to collective investment schemes. Previously, due to ambiguous regulatory definitions, there was a risk that staking could be classified as a traditional collective investment scheme, which must comply with stricter FSMA regulations.

FinTax Brief Comment:

The FSMA is one of the most important financial regulatory laws in the UK, which began regulating cryptocurrency staking as Collective Investment Schemes (CIS) at the beginning of 2023. A Collective Investment Scheme refers to a financial arrangement where funds from multiple investors are pooled together and managed by a professional team, allowing investors to share in the profits or risks according to their shares. The act of staking cryptocurrency is similar in form to this, leading the UK to classify it as a type of Collective Investment Scheme. This amendment means that staking activities involving cryptocurrencies represented by ETH and SOL will no longer be required to meet the stringent regulatory requirements of Collective Investment Schemes. Specifically, the amendment clarifies that staking activities are fundamentally different from Collective Investment Schemes, as the blockchain verification process involved in staking primarily refers to participants locking up their cryptocurrencies to verify transactions on the blockchain, ensuring the security of the network, which is fundamentally different from the nature of pooled funds and investment return mechanisms involved in traditional Collective Investment Schemes.

According to the FSMA regulations, CIS must meet strict standards from establishment to operation. For example, the management company should have robust capital and financial capacity, disclose investment details in a timely and transparent manner, and implement customer due diligence (CDD), among others. Therefore, excluding cryptocurrency staking from CIS will reduce the compliance costs of the cryptocurrency staking ecosystem, thereby promoting the prosperous development of cryptocurrency staking in the UK. Of course, this will objectively reduce the protection for UK cryptocurrency investors and increase their risk of investment losses. However, from the perspective of balancing regulation and innovation, the concessions made by UK regulators in this revision are more about leaving room for innovation and development for the domestic cryptocurrency industry, which is beneficial for the long-term interests of the cryptocurrency sector.

From a global perspective, the cryptocurrency staking sector has always been a regulatory hotspot in various countries. For example, in the European Union, MiCA includes free-acquired cryptocurrencies in the jurisdiction exemption category, but users are required to spend a significant amount of Gas for interactions, and projects that require cryptocurrency staking are excluded from the exemption. Japan and Australia conduct specific analyses of cryptocurrency staking activities; if staking rewards are classified as financial product income, then staking activities must also comply with relevant financial regulations. Singapore explicitly prohibits providing cryptocurrency lending and staking services to individual investors.

In summary, the regulation of cryptocurrency staking is an important issue that governments around the world must face, but different countries hold different attitudes towards it. The significance of the UK’s revision of the FSMA lies not only in its further clarification of the regulation of staking activities but also in its indication of the UK’s strategic position in the global cryptocurrency space: maintaining flexibility in regulation, cautiously loosening restrictions gradually, and avoiding overly stringent rules that would hinder industry development. This change is expected to attract more blockchain project parties and cryptocurrency companies to enter the UK market and help the UK gain an advantage in global crypto-financial innovation.