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The government has confirmed its final proposals for cryptoasset regulation in the UK, including its intention to bring a number of cryptoasset activities into the regulatory perimeter for financial services for the first time. This document provides the government’s response to the consultation and call for evidence on the future financial services regulatory regime for cryptoassets, which was published on 1 February 2023 and closed on 30 April 2023. It summarises the feedback received by HM Treasury in response to the consultation, and details how this has influenced further development of the government’s approach. “We have been clear cryptocurrency regulation uk on the need for the financial promotions regime to be extended to cover cryptoassets.
Government sets out plan to make UK a global cryptoasset technology hub
They commonly operate through centralised entities and are traded on centralised exchanges. Only a few cryptoasset activities have needed authorisation under the Financial Services and Markets Act 2000 (FSMA). This applies to cryptoassets that act like traditional investments falling under https://www.xcritical.com/ the definition of ‘specified investments’.
UK sets out plans to regulate crypto and protect consumers
But “you’ve got this change in government, and that always delays the implementation of a [regulatory] regime,” Lynch said. But since then, the industry worldwide has been buffeted by a series of crises – most recently, the collapse of the FTX exchange, which prosecutors have described as “one of the biggest financial frauds in US history”. The UK’s plan to finally put concrete proposals in place will be welcomed by consumer investors hit in their pockets. The sector has had a calamitous year, with assets collapsing in value by an estimated 75% from their peak of about $3 trillion in November 2021. Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium.
Tighter rules make an impact on UK crypto markets
Royal assent, a purely procedural step following agreement from lawmakers, makes the Financial Services and Markets Bill an Act, and includes measures to bring crypto and stablecoins into the scope of regulation. The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases. Previously, digital belongings were not definitively included in the scope of English and Welsh property law – leaving owners in a legal grey area if their assets were interfered with.
Our world-leading legal services form a vital part of our economy, helping to drive forward growth and keep Britain at the heart of the international legal industry. Regulators are racing to draw up rules to manage cryptocurrencies amid concern that their growing popularity could threaten established financial systems. They must be kept in an offline storage vault and held by custodians subject to anti-money laundering rules in the UK, EU, Jersey, the US and Switzerland.
As part of this approach, the consultation will seek views on improving market integrity and consumer protection by setting out a proposed crypto market abuse regime. As the UK moves forward to design and implement a phased regulatory regime, the FCA has published a discussion paper DP23/4. This covers the proposed approach to regulating fiat-backed stablecoins, recognising their potential for widespread adoption including to facilitate trading, lending and borrowing of cryptoassets. The Taskforce concluded that while DLT is at an early stage of development, it has the potential to deliver significant benefits in financial services and other sectors in the future, and all 3 authorities committed to supporting its development. The government has today announced moves that will see stablecoins recognised as a valid form of payment as part of wider plans to make Britain a global hub for cryptoasset technology and investment. In addition, to address industry concerns about the small number of Financial Conduct Authority (FCA) authorised cryptoasset firms who can issue their own promotions, HM Treasury is also introducing a time limited exemption.
It is essential that the law keeps pace with evolving technologies and this legislation will mean that the sector can maintain its position as a global leader in cryptoassets and bring clarity to complex property cases. In November 2023, the previous government announced its intention to implement the Organisation for Economic Co-operation and Development Cryptoasset Reporting Framework. At Spring Budget 2024 a consultation was launched seeking views on the implementation of these new rules and certain other proposals. These are published alongside the summary of responses to the consultation. In 2021 the FCA banned crypto-related derivatives, which included exchange traded products, owing to concerns over the amount of leverage, or borrowing, available to consumers.
- Tech-savvy owners of Bitcoin and other digital assets will benefit from greater legal protection thanks to an important clarification to the law.
- Cryptoassets – commonly known as ‘crypto’ – are a relatively new, diverse and constantly evolving class of assets that have a range of potential benefits, as well as posing risks to the consumer.
- Wild fluctuation in the value of some digital currencies has led regulators to warn they pose risks.
- The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases.
- Regulators in other major markets have become increasingly comfortable with investors buying crypto-linked securities, as long as the securities are in a regulated product.
- Bim Afolami, the minister responsible for the financial services sector, promised they’d be ready by summer 2024 — but a snap election that Labour won put paid to that.
Cryptoasset businesses marketing to UK consumers, including firms based overseas, must start getting ready now for this regime,” said the FCA. The cryptoasset financial promotions regime applies to all firms marketing cryptoassets to UK consumers, regardless of whether the firm is based overseas or what technology is used to make the promotion. The proposals will also strengthen the rules around financial intermediaries and custodians – which have responsibility for facilitating transactions and safely storing customer assets. These steps will help to deliver a robust world-first regime strengthening rules around the lending of cryptoassets, whilst enhancing consumer protection and the operational resilience of firms.
The UK’s vision for being a global hub for cryptoasset technology was set out in a speech by the Economic Secretary to the Treasury, John Glen at the Innovate Finance Global Summit today. By recognising the potential of this technology and regulating it now, the government can ensure financial stability and high regulatory standards so that these new technologies can ultimately be used both reliably and safely. The government has published proposals for crypto-asset regulation it hopes will “manage” the risks of the “turbulent industry”. The move follows a year of acute turbulence in the digital asset industry, which included the collapse of Sam Bankman-Fried’s FTX cryptocurrency empire and lender Celsius, which left individuals globally with billions of dollars in frozen funds. The value of the 500 biggest crypto tokens also tumbled $1.7tn last year. The government’s proposed measures have been informed by recent market events – including the failure of FTX – which reinforce the case for effective regulation and sector engagement.
New specific rules for the crypto sector could come within 12 months, Griffith told CNBC in April. The Bill will also ensure Britain maintains its pole position in the emerging global crypto race by being one of the first countries to recognise these assets in law. These proposals will place responsibility on crypto trading venues for defining the detailed content requirements for admission and disclosure documents – ensuring crypto exchanges have fair and robust standards.
They plan to use existing regulations for the industry, rather than creating a bespoke regime. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.
Last year, the FCA introduced new financial promotion rules around the marketing of cryptoassets in the UK (applicable to all firms regardless of whether they are based overseas or what technology is used to make the promotion). In effect, promotions must be communicated or approved by an FCA-authorised firm. There are strict rules stating that all promotions must be fair, clear and not misleading, with prominent risk warnings. The FCA has been vigilant and clearly busy in enforcing these rules, issuing hundreds of warnings and stopping unauthorised promotions within a month of the restriction.
The bill, which was introduced in July 2022, gives regulators more power over the financial system, including crypto. While the bill was debated in Parliament, amendments were added to treat all crypto as a regulated activity and to supervise crypto promotions. The bill will also bring stablecoins into the scope of payments rules. The Act “gives us control of our financial services rulebook,” following the U.K.’s exit from the EU, enabling regulation of crypto assets to support their safe adoption in the U.K., said Financial Services Minister Andrew Griffith in a statement. In comparison to the EU’s Markets in Cryptoassets Regulation (MiCAR), the UK’s approach is more gradual, initially focusing on stablecoins. MiCAR, due to take effect in 2024, aims to comprehensively regulate the crypto industry across the EU, covering various types of cryptoassets from the start, including stablecoins.
Hundreds of billions of pounds were wiped from the crypto landscape and companies and people went bankrupt thanks to scandal after scandal. Even when the crypto market was booming, in 2021, calls for regulation were loud. Simply sign up to the UK financial regulation myFT Digest — delivered directly to your inbox.
At the time of writing, Bitcoin had reached an all-time high of $70,000. John Glen also confirmed that the government will consult on wider regulation of the cryptoasset sector later this year. The government further confirmed that it will initiate a research programme to explore the feasibility and potential benefits of using DLT for sovereign debt instruments. Stablecoins are a form of cryptoasset that are typically pegged to a fiat currency such as the dollar and are intended to maintain a stable value. With appropriate regulation, they could provide a more efficient means of payment and widen consumer choice. While some cryptoassets are outside the FCA’s perimeter, investment products such as derivatives contracts that reference these cryptoassets are likely to be within our perimeter, as we have previously stated.
Bitcoin, the world’s largest cryptocurrency, hit $72,000 for the first time while ethereum touched $4,000 for the first time since December 2021. Gemini ran a survey of 6,000 people in four major markets, including the UK and US. But, she said, compliance is the cost of doing business, that it’s what consumers expect. “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires.
