The recent publication of the U.K. government’s final rules for the crypto ecosystem marks a significant step towards bringing the industry under the purview of conventional financial regulation. The government’s phased introduction of regulation, with a focus on fiat-backed stablecoins, signals a proactive approach to accommodating the crypto industry within the existing regulatory framework.
The plan, which aligns with the earlier policy set out by Rishi Sunak to establish the U.K. as a crypto-asset hub, has been welcomed by the industry, which has expressed concerns about the government’s perceived sluggishness in this area. The Treasury’s consultation process, which began in February and concluded in April, culminated in the passing of the Financial Services and Markets Act 2023 in June, allowing for crypto to be treated as a regulated activity.
The recent update clarifies the treatment of various crypto assets, indicating that the proposed regime aims to regulate activities that are not already covered by existing regulations, such as traditional securities. Furthermore, the government recognizes the distinction between NFTs used as collectibles or artwork and those used as exchange tokens, hinting at potential future inclusion of certain NFTs under financial services rules.
The government’s decision not to prohibit decentralised finance (DeFi) at this stage acknowledges the need for further understanding and development in this domain. In addition, plans have been outlined to regulate stablecoins backed by fiat currency under the existing financial services rules, with provisions to ensure the resilience of the financial system in the event of the failure of any digital payment system.
The U.K. also proposes stricter regimes for market abuse and cryptoasset issuance and disclosures. The government aims to introduce laws for the crypto industry before Parliament by 2024, however, it is not immediately clear at this stage what U.K. laws on crypto will look like.
The EU set out a clear framework for digital assets with its MiCA (Markets in Crypto-Assets) regulation, including a licensing process for crypto firms. The U.K. is further ahead in the process than other tech leading nations. Numerous bills are going through Congress in the U.S., but it is far behind others when it comes to bringing about formal federal laws for the crypto industry.
However, the U.K. government’s plans have not been immune to criticism, with concerns raised by some lawmakers regarding the potential for regulatory measures to foster a false sense of security among crypto users. Moreover, complaints from the industry about delays and inadequate feedback from the FCA, alongside the impact of recent restrictions on crypto promotions leading some major firms to cease operations in the U.K., indicate the need for ongoing dialogue and collaboration between the government and the crypto industry to achieve a balanced regulatory framework that promotes innovation while safeguarding investors and consumers.
(Source: CoinDesk / CNN)