Kraken co-chief criticizes UK’s strict crypto rules

Kraken co-CEO Arjun Sethi criticized the U.K. financial regulator, the Financial Conduct Authority (FCA), for its strict rules on the promotion of virtual assets. Sethi argued that these rules negatively impact the consumer experience and could deter potential users from investing in cryptocurrencies entirely. He warned that the excessive disclosure requirements could ultimately reduce interest and adoption of digital assets for U.K users.

The U.K’s financial regulations require companies that promote crypto services to post clear risk warnings, often presented as dire pop-ups resembling warnings on cigarette packets. Sethi criticized this approach, saying it discourages users by creating unnecessary psychological barriers. He remarked that such pop-ups seem to imply, “Use this and you’re going to die.”

He also pointed out that the rules enforce 14-step processes for completing transactions, which reduces efficiency and hurts the user experience. According to Sethi, disclosures are important, but the excessive precautions harm consumers rather than protect them.

In addition to warning labels, Sethi noted that the FCA’s rules are preventing access to approximately 75% of crypto offerings, like DeFi staking and lending. This happens because the FCA prohibits trading incentives, making it harder for firms to provide diverse services to users. Sethi argued that these limitations could result in missed opportunities for consumers to reap potential gains from cryptocurrency investments.

In response to the criticism, the FCA defended its regulations, claiming that they are designed to ensure consumers are fully aware of both the risks and benefits of investing in crypto. While the FCA acknowledged that customers must answer risk-related questions before seeing crypto promotions, it clarified that such steps are not required for every trade. According to the FCA, ‘Some consumers may make an informed decision that investing in crypto is not right for them—that is our rules working as intended.’

The U.K’s cautious stance on crypto starkly contrasts with pro-crypto regulations in the U.S. For instance, the FCA recently filed a lawsuit against Justin Sun-linked exchange HTX for allegedly flouting financial promotion rules. Such lawsuits underscore the regulator's strict approach, which continues to heavily regulate the market.

Sethi also dismissed the idea of offering tokenized shares of private companies, labeling it a 'terrible idea.' He criticized Robinhood’s recent decision to tokenize OpenAI’s shares, calling Robinhood chief Vlad Tenev’s arguments for the move 'flawed.' Sethi argued that tokenizing private company stocks could harm investors by making it exceedingly difficult to sell their holdings on secondary markets.

Kraken has received an Electronic Money Institution (EMI) license from the U.K’s FCA, enabling it to issue electronic money, facilitate faster deposits and withdrawals, and introduce new products targeting U.K users. Sethi highlighted that this license opens doors to collaborations with local financial institutions and showcases Kraken’s commitment to expanding services in a market he sees as nearing ‘mass crypto adoption.’