On February 1, 2023, UK shared a press release and set out ambitious plans to robustly regulate cryptoasset activities – providing confidence and clarity to consumers and businesses. It proposes a new authorization regime for any company operating from the U.K. or serving local clients – and has gained an immediate, largely positive reaction from the industry.
The government has launched a consultation, Future financial services regulatory regime for cryptoassets, on proposed crypto trading and lending regulations. These include establishing a world-first regime for the regulation of such activities. The announcement is part of the Prime Minister’s plan to grow the economy and deliver on his promise to introduce technological change.
Financial services regulatory regime for cryptoassets
The consultation on the proposed regulations will end on April 30, 2023, after which the government will consider the feedback and work on its response. After the regulations are established, the Financial Conduct Agency (FCA) will begin developing detailed rules for the crypto industry.
The future financial services regulatory regime for cryptoassets released by HM Treasury, has highlighted the difficulties in regulating decentralized finance. This borderless business needs a prominent central authority to oversee it.
Some suggestions included requiring individuals who operate code audits or establish protocols to prove their legitimacy. However, the government noted that it would be premature to implement these ideas due to the lack of international standards and clarity regarding the legal status of decentralized organizations.
The consultation builds on previous HM Treasury proposals, which focused on stablecoins and the financial promotion of cryptoassets. This consultation focuses specifically on the future UK regulatory framework for cryptoassets used within financial services, rather than the broader application of distributed ledger technology (DLT) in financial services or using cryptoassets outside financial services.
The government’s goal is to make the U.K. the world’s leading financial center. To achieve this, it is taking various proactive steps to develop and implement regulations that will allow it to remain a leader in the innovation and financial technology sectors.
The U.K. is also working to catch up to the European Union. The E.U. is currently implementing its landmark regulation on the comprehensive Markets in Crypto-Assets (MiCA) regulation (MiCA), which will allow for service providers’ licensing and establish a regulatory framework for stablecoins.
The country’s Financial Services and Market Bill, which will give crypto regulators additional powers, is currently being debated in the House of Commons. It is expected to reach a final version by April 2023.
Our regulatory team has written a full assessment of the impact of MiCA regulation on the crypto sector.
Importance of the consultation on Crypto Industry
The rapid emergence and evolution of the crypto sector have raised concerns about its structural vulnerability. Despite the various advantages of cryptocurrencies, their volatility has highlighted the need for more regulation. The government has taken a robust approach to regulating the industry to address these risks.
The government’s approach to regulating the industry will allow it to flourish and grow while ensuring that the activities are conducted responsibly. It will also place significant responsibility on the exchanges to ensure a robust and fair disclosure and admission procedure.
The proposed regulations will also help to strengthen the rules related to the lending and transactions of cryptocurrencies. These rules will ensure that the activities of financial intermediaries are conducted efficiently and responsibly. The consultation will also look into developing a framework that will improve the protection of consumers and prevent market abuse.
To address the concerns of the crypto industry, HM Treasury is introducing a time-limited exemption for cryptoasset firms already authorized by the Financial Conduct Authority. (FCA). These firms will be allowed to carry out their promotions while the broader regulatory framework is being developed.
This approach is consistent with the government’s objective of promoting innovation and enhancing consumer protection. It will also help prevent market abuse and ensure that the promotions of cryptoassets are conducted ethically and responsibly.
Our Regulatory & Compliance team at Crystal Blockchain comprises financial services, regulators, and experts. We are hands-on professionals with experience in transforming regulation into effective risk management. Follow our regular updates on Crypto regulation and compliance for an unbiased approach to crypto regulations, and don’t hesitate to get in touch for any compliance-related questions at: [email protected]
