The UK government has introduced a comprehensive regulatory framework for cryptoassets following the conclusion of a consultation period on cryptocurrencies. These proposals signify a significant stride in the UK government’s ambitious objective to include various cryptoasset activities under the umbrella of financial services regulation. This means that firms engaged in direct dealings with UK retail consumers will be subject to authorization requirements, regardless of their geographical location.
Treasury Minister Andrew Griffith, as stated in the UK Treasury’s press release on Monday, pointed out that the final regulatory framework, which was developed based on feedback from a crypto consultation held in February and concluded in April, aims to position the UK as a “global hub for cryptoasset technologies.” Simultaneously, it aims to make the UK a more attractive destination for launching and expanding cryptoasset businesses.
Griffith emphasized that these proposals are designed to create an environment that facilitates the operation and growth of cryptoasset service providers in the UK while also addressing potential consumer and stability risks.
Crypto Exchanges Will Need to Acquire Authorization
The newly unveiled documentation outlines that companies engaged in cryptoasset activities will now be required to obtain authorization from the UK’s Financial Conduct Authority (FCA). This authorization process will entail crypto exchanges setting up specific admission standards and mandating full disclosures when introducing new assets.
Throughout the consultation period, the UK Treasury received input from various stakeholders, including legal and consulting firms, native crypto businesses, FinTech companies, industry associations, as well as feedback from the general public and academia. Treasury Minister Andrew Griffith acknowledged that modifications were made to the framework based on the insights and feedback received.
While the majority of the proposals were well-received by a significant number of respondents, the report notes that certain aspects of the framework were adjusted to incorporate the evidence and suggestions provided.
It’s important to note that the new regulations will not impact cryptoassets that already fall under existing regulations, such as security tokens. Additionally, the UK Treasury clarified that activities associated with NFTs that are primarily digital collectibles or art pieces, rather than financial services or products, will not be subject to financial services regulation.
Decentralized Finance Escapes The Regulatory Net For Now
The regulatory framework has refrained from introducing regulations for decentralized finance (DeFi), and the report affirms that regulating DeFi at this stage would be considered “premature.”
As the report states, “In line with consultation responses, HM Treasury recognizes that it would be premature and ineffective for the UK to regulate DeFi activities currently.” Instead, the government aims to support international efforts by working with organizations like the Financial Stability Board (FSB) and standard-setting bodies to contribute to the development of a future domestic framework for DeFi regulation.
In a separate document outlining the UK government’s plans for regulating fiat-backed stablecoins, following an initial consultation in May, the UK Treasury declared its intent to regulate the use of fiat-backed stablecoins in payment systems. Additionally, it plans to regulate the activities related to the issuance and custody of such stablecoins when issued in or from the UK, regardless of their intended use.
The Treasury envisions introducing secondary legislation in early 2024, though this timeline may be subject to change based on the parliamentary schedule.