As London looks to sustain balance and keep up with EU financial hubs post-Brexit. Will cryptocurrency be one way to increase its chances?
The UK government has finally announced how it will regulate cryptocurrency under the existing financial services regime – the UK Financial Services and Market Act 2000 and under the Financial Conduct Authority FCA.
This was a long-awaited decision, and the European Union and the U.S. have already made their proposals regarding cryptocurrency consumer protection.
“It’s important to ensure general alignment between global markets in terms of the approach to digital assets”, said Julian Sawyer, CEO of Standard Chartered-backed crypto custody services firm Zodia Custody.
The aim is to manage the risks we have seen recently in the crypto world where we saw assets collapsing by 75%, with the downturn named the “Crypto Winter”.
Approximately 10% of UK adults now own some form of cryptocurrency, regulation is definitely needed. But is this the right move, rather than creating a bespoke regime?
Is the existing legislative framework actually geared up to deal with crypto or is dealing with it under the current regime a mistake?
Read on to find out more.
Regulation of digital currencies in the UK
The crypto industry in the United Kingdom involves all forms of digital currencies, such as cryptocurrency, bitcoins, and blockchain technology. The government aims to strengthen the UK’s economy and help Britain become a digital asset hub, despite the collapse of the cryptocurrency exchange FTX.
The government plans to create fair standards for issuing, trading and lending crypto with an approach to traditional finance in the same way stocks and bonds are currently regulated.
In fact, the U.K. proposals came from the FTX crash, which highlighted the risks of crypto exchange, trade and marketing. It brought to light how cryptocurrency activities should develop.
The new set of rules applies to all crypto firms in the U.K. and foreign providers and states that each firm will need a licence, minimum liquidity requirements and minimum capital.
One of the proposals aims to strengthen rules for financial intermediaries and custodians holding crypto on behalf of clients. This is due to an increase in risky lending amongst various crypto companies. It is also due to the lack of due diligence on the part of the counterparties involved in these transactions.
Among the measures are firmer transparency requirements on crypto asset exchanges to publish relevant disclosure documents and set precise requirements for entry into digital token trading.
One of the proposed measures allows more freedom in crypto advertising. For instance, companies registered with the Financial Conduct Authority can issue their promotions while a more comprehensive crypto regime is being rolled out.
Under the proposed rules, regulated cryptocurrency lenders must adequately warn consumers about the risks and restrict retail investors in the event of bankruptcy.
Takeaway
As we all know, regulation takes time, and the plans are still in the consultation stage. So we don’t expect to see any movement in the current situation for a number of years as the bill is making its way through parliament.
European Union is in an advantageous position with its Markets in Crypto-Assets law, taking effect in 2024.
Whilst some regulation in this area is better than none. Only time will tell whether the existing regime is going to be robust enough to legislate in this tricky market.