The United Kingdom (U.K.) has opened a consultation on new rules for regulating the crypto sector. The government intends to regulate cryptoassets, including trading, lending, and custody, similarly to that traditional finance (TradFi).
The U.K. has set out plans to regulate cryptocurrencies and protect consumers. H.M. Treasury issued a press release earlier today in which it opened consultation surrounding a set of “ambitious plans to robustly regulate cryptoasset activities – providing confidence and clarity to consumers and businesses alike.” The U.K. government’s actions to regulate cryptocurrencies have been driven by Prime Minister Rishi Sunak’s plans to attract more crypto business and investment in the country and to make the U.K. a global crypto-asset hub, and out of a need to better protect consumers against volatile market conditions such as those experienced in recent months.
U.K. Announces “Robust” Plans to Protect Consumers and Grow the Economy
As cryptoassets, or “crypto,” as they are more commonly known, are a new, diverse, and evolving class of assets that have so many benefits to offer; they do, however, come with risk to consumers. As is the nature of emerging technology markets, cryptos remain highly volatile, and the recent failures of some of the top industry players have “exposed the structural vulnerability of some business models in the sector.” The U.K. argues that its robust approach to regulating the crypto sector will mitigate some of the most significant risks while benefiting from the advantages of the digital asset market. The consultation was published on February 1, and Treasury will continue to seek responses until April 30.
Andrew Griffith, Economic Secretary to the Treasury, said in the press release:
We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. But we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards.
U.K.’s Approach to Regulating Cryptoassets is Consistent with its Approach to TradFi
The Treasury has said it will seek to regulate cryptoassets in an approach consistent with traditional finance. The first of the U.K.’s robust approach to regulation is to place the responsibility on crypto trading venues for defining detailed content requirements for admission and disclosure documents, ensuring that crypto exchanges have fair and robust standards.
The government has also proposed strengthening the rules around financial intermediaries and custodians. These entities enable the transacting and storage of customers’ cryptoassets. The proposed regulations also address industry concerns about the limited number of Financial Conduct Authority (FCA) authorized cryptoasset firms who can issue their own promotions. According to reports by Bloomberg, many crypto companies raised concerns over the government’s proposals on cryptoasset promotion, arguing that firms which have already met the FCA’s standards should be able to issue their own advertisements without having an authorized third-party sign-off. To address this, H.M. Treasury is introducing a time-limited exemption to this rule. The exemption will allow cryptoasset businesses registered with the FCA for anti-money laundering purposes to issue their own promotions for the time being while the broader cryptoasset regulatory regime is being introduced.
FCA Rejects Most Crypto Companies
The U.K. should receive H.M. Treasury’s proposed regulation well, given that issues with the FCA have recently come to light beyond those mentioned above. Recent reports revealed that the FCA has thus far only given regulatory approval to 41 of the 300 crypto-related companies registered with the agency. The agency made an announcement regarding the fact that only about 15% of companies have gained regulatory approval. Still, it gave no decisive reason why the agency has successfully approved so little. The FCA said:
The FCA has been the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of U.K. cryptoasset businesses since January 10, 2020. Since then, we have received over 300 applications for registration under the MLRs and have determined over 260 as of January 2023. Of the applications we determined, we approved and registered 41 (15%), 195 (74%) were either refused or withdrew their application, and we rejected 29 (11%) submissions.
Global Cryptoasset Regulation Appears Imminent
The U.K.’s effort to regulate the crypto sector aligns with the global approach to cryptoassets. In April, the European Union (E.U.) will have its final vote on its wide-ranging Markets in Cryptoasset bill (MiCA), while the Biden Administration announced a framework for reducing the risks associated with cryptoassets last week.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.