The cryptocurrency industry, which was once considered nothing more than an outlier, has become a part of the mainstream financial services space. According to estimates, the global market value of cryptocurrency transactions quadrupled between October 2020 and May 2021.
The UK is no exception to this, as an increasing number of investors and companies are looking to benefit from this rapidly growing industry. However, the true potential of the crypto space in the UK can only be realized if the country manages to implement regulations that are both safe and also practical. This blog assesses the current state of cryptocurrency regulations in the UK.
Brief History
The UK has previously taken a few steps in terms of developing clearer regulations for crypto transactions. For instance, it decided to set up a UK Cryptoassets Taskforce in 2018. This task force drafted important regulations, including a wider coverage of the anti-money laundering regime. Further, cryptocurrency firms in the country are now being provided with a “registration authorization”, enabling them to receive approval from the Financial Conduct Authority (FCA).
These developments indicate that the UK is proving to be one of the regulatory first-movers.
Current Status
There is also a lot of ambiguity regarding some of the regulations. For example, uncertainty continues to prevail regarding registration authorization. In April 2021, only four firms had been provided with full authorization in the UK. The country also monitors the regulatory developments taking place elsewhere, such as the European Union (EU) and in the USA.
The cryptocurrency regulations in the country are currently framed by the FCA, which is not a government body. Although the Bank of England also issues its guidelines, these cannot be classified as laws. FCA-issued regulations have also faced a degree of resistance in the UK, as some stakeholders have been unhappy about the ban on digital assets such as stable coins.
This summer there were also operational limits put by the UK on one of the biggest exchanges, Binance, as the British regulator feels there is not enough clarity over Binance’s operations.
Future Outlook
If the country can draft and implement clearer and more practical blanket regulations covering all aspects of blockchains, cryptocurrencies, and related operations, it may be able to influence global policy on this matter. To achieve this, however, the UK must analyze the intricacies of cryptos and blockchain and formulate regulations that are smart as well as pragmatic.
For example, areas such as blockchain recordkeeping may not require much regulation, while cross-border cryptocurrency transactions require a much higher degree of scrutiny. In addition, the authorities must continue to draft regulations that ensure tighter control over the misuse of cryptos while also fostering a culture of product and technological innovation within the sector.
Potential Leader?
It is evident that the UK has taken large strides towards regulating the cryptocurrency industry. However, the country’s national policies governing this sector are still in the development phase.
The UK must continue to expand and improve its crypto regulations in the coming months. If it manages to do so, then the country may emerge as a true world leader in this space.
Financial institutions and investors looking to enter the crypto industry can also seek help from industry experts. Several independent analytics firms such as Crystal Blockchain provide blockchain compliance and risk management solutions that are compelling and customizable.
