Kraken’s co-chief executive Arjun Sethi has sharply criticised the UK’s regulatory regime for crypto promotion, saying that rules designed to protect retail investors are instead creating excessive friction, slowing down transactions and pushing users away from crypto markets. His comments represent one of the most public challenges yet to the Financial Conduct Authority’s consumer-protection-oriented regime introduced in late 2023.
Key Points
- Sethi said that on UK crypto websites “you see the equivalent to a cigarette box — ‘use this and you’re going to die’,” referring to mandatory risk warnings and disclaimers.
- The FCA’s rules require crypto firms to issue prominent risk warnings, ban incentives, assess customer appropriateness, and impose “positive frictions” such as cooling-off periods.
- Sethi claimed that UK users are blocked from up to 75 % of crypto products available in other jurisdictions (for example in the U.S.), including decentralised finance (DeFi) services like staking and lending.
- He argued that excessive steps — for instance, “14 steps” to execute a transaction — mean protection rules that intend to help may actually degrade the user experience and limit access.
Why This Matters
- Innovation vs. protection trade-off: The UK’s rules are among the most rigorous worldwide in terms of consumer-crypto protections; Sethi’s comments underline tension between fostering innovation and enforcing shelter from risk.
- Competitive positioning: If UK regulation is perceived as overly restrictive and user-unfriendly, the UK risks losing ground to jurisdictions that align regulation with market access and innovation. Sethi’s remarks hint at a broader industry concern about capital flow and talent.
- Retail-investor impact: As many novice users rely on straightforward interfaces and fast access, too many procedural steps or detailed warnings may discourage participation altogether — which is the opposite of what protection-focused rules aim to achieve.
- Global regulatory signal: Given Kraken’s global footprint, the critique may influence other platforms and global discussions on how to structure balance between user protection and market access in crypto.
Challenges & Counterpoints
- The FCA defended its rules, saying they ensure customers understand both the benefits and risks before investing; it noted that while some consumers may decide not to invest, that is a sign the rules are working.
- The argument that speed is central to retail crypto trading may not align with consumer-protection goals, especially in high-risk asset classes; critics may say that despite inconvenience, the steps serve to prevent harm.
- Because crypto assets remain volatile and carry unique risks, regulators globally face difficult decisions — speed and access may improve user experience but potentially increase exposure to financial loss.
- Whether the 75 % availability claim is accurate or reflects transient product listings is subject to verification; product domicile, licensing, and regional eligibility complicate comparisons.
What to Watch
- UK policy updates: Whether the FCA or UK government respond to industry criticisms with amendments or easing of the “financial-promotion” rules for crypto firms.
- Platform behaviour: How firms like Kraken, and others operating in the UK, modify their user flows to comply with rules while minimising friction; whether they pull back services or shift domiciles.
- Product availability differences: Track which crypto-products (staking, lending, DeFi access) are restricted in the UK and whether this gap narrows over time relative to the U.S. or EU.
- Retail engagement metrics: Monitor for data on UK retail engagement/drop-off rates in crypto services post-rule introduction, to empirically assess whether friction is deterring participation.
- Regulatory-market divergence: Observe how the UK’s regulatory stance contrasts with other jurisdictions (e.g., U.S., Singapore) and whether capital or talent flows gravitate toward more permissive markets.
Bottom Line
Arjun Sethi’s criticism of the UK’s crypto-promotion rules brings a high-profile voice into the debate about how best to protect crypto investors while maintaining market access and innovation. His claim: that protections have morphed into impediments. Whether regulators respond by loosening the regime, or industry adapts differently, remains to be seen — but the tension between safeguarding consumers and enabling financial innovation in crypto is now sharper than ever.