UK sets out plans to regulate crypto and protect consumers

Last year, Rishi Sunak, then Chancellor, said he wanted to make the UK “a global hub for crypto-asset technology”, external. Complete digital access to quality FT journalism with expert analysis from industry leaders. The UK remains committed to creating a regulatory environment in which firms https://www.xcritical.com/ can innovate, while crucially maintaining financial stability and clear regulatory standards so that people can use new technologies both reliably and safely. The Treasury has been consulting on its proposed rules for the sector since February, in line with the Conservative Government’s objective to turn the country into a crypto hub.

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Our Innovation Hub supports innovative businesses to launch new products or services that benefit consumers. “I want to see people who have cryptocurrency services and products encouraged to open for business in the UK. It wants to create a level playing field between traditional and emerging financial services, where the principle is “same risk, same regulatory outcome”. The Treasury also said cryptocurrency regulation uk on Tuesday that it would seek to strengthen rules surrounding companies that facilitate crypto transactions and safeguard customer assets.

Cryptocurrency: UK Treasury to regulate some stablecoins

The collection was considered a virtual asset and could not be released, Guernsey Post says. After recent scandals in the crypto sector, the Treasury has downplayed its significance in Britain’s efforts to find growth. The U.K.’s Treasury, Financial Conduct Authority, Bank of England, and the Payments Systems Regulator will soon be able to introduce and enforce rules to regulate the sector. It is estimated that English law governs £250 billion of global mergers and acquisitions, and 40 per cent of global corporate arbitrations, so keeping the law up to date is vital to ensuring that the UK remains the law of choice internationally. Sir Jon Cunliffe told the BBC that if the value of cryptocurrencies fell sharply, it could have a knock-on effect. “What does the future of crypto here in the UK look like? No-one knows for sure,” he said in a speech.

• While the bill was debated in Parliament, amendments were added to treat all crypto as a regulated activity and to supervise crypto promotions.
• The U.K.’s Treasury, Financial Conduct Authority, Bank of England, and the Payments Systems Regulator will soon be able to introduce and enforce rules to regulate the sector.
• Tether, a Hong Kong based company, has faced questions over its business practices and was fined $41m in 2021 by the US Commodities Futures Trading Commission for allegedly misstating its reserves.
• The Treasury also said on Tuesday that it would seek to strengthen rules surrounding companies that facilitate crypto transactions and safeguard customer assets.
• Late last year it expanded existing rules on how financial firms are allowed to market themselves to crypto businesses.

Tighter rules make an impact on UK crypto markets

They are exchanged via “peer-to-peer” transactions, meaning there are no banks or other third parties involved. Tether, a Hong Kong based company, has faced questions over its business practices and was fined $41m in 2021 by the US Commodities Futures Trading Commission for allegedly misstating its reserves. They are considered less volatile than cryptocurrencies such as Bitcoin.

Cryptoasset businesses that are registered with the FCA for anti-money laundering purposes will be allowed to issue their own promotions, while the broader cryptoasset regulatory regime is being introduced. While this market continues to move at pace, UK regulation is progressing under a more gradual, phased approach to include various forms of cryptoassets. The intention is to implement a more expansive, comprehensive regulatory regime, underpinned by the Government’s legislative plans. Due to our concerns about the ability of retail consumers to reliably value and assess the risks of investing in such products, we have prohibited the sale of derivatives and exchange traded notes referencing cryptoassets.

This enables a new and exciting sector to safely flourish and grow, boosting jobs and investment. 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. However, they are increasingly going mainstream, with major financial companies now investing in them. Stablecoins are currently used in the United States to facilitate trading, lending or borrowing of other digital assets.

“The sooner we have details around concrete proposals, the easier it is to plan for and build towards.” Ministers estimate up to 10% of UK adults now own some form of crypto. Crypto currency firms are waiting to see how November’s vote will impact upon them.

Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. This includes security tokens, such as shares or debt instruments, or units in a collective investment scheme using tokens to represent investors’ interests. However, defining the regulatory perimeter has been challenging and prone to a high degree of interpretation. We’ve worked with a significant number of cryptoasset related business models, primarily through the Regulatory Sandbox and Innovation Pathways.

The process of generating digital coins via banks of powerful computers, called mining, is also highly energy intensive. Recent research suggests Bitcoin now generates carbon emissions comparable to the country of Greece. “But we think that by making this country a hospitable place for crypto we can attract investment [and] generate swathes of new jobs.” UK Financial Services Minister John Glen said the UK saw “enormous potential in crypto” and had a “detailed plan [for] harnessing the potential of blockchain and supporting the development of a world-best crypto ecosystem”. The UK’s Treasury said regulating stablecoins would ensure they could be used “safely” by the public.

While there’s much still to work through, crypto regulation continues to take shape and will be one to watch through 2024 and beyond. Once any legislation is put to Parliament, it will be the job of the regulator, the Financial Conduct Authority, to draw up the detailed rules the sector will have to follow. “If you don’t have a proper regime, you drive people off shore,” he said. Jeremy Barnett, a barrister and honorary professor of algorithmic regulation, at University College London, said the UK had much to gain, as entrepreneurs were currently choosing to set up elsewhere.

Tech-savvy owners of Bitcoin and other digital assets will benefit from greater legal protection thanks to an important clarification to the law. Under plans set out by the government today (1 February), it will seek to regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance. “We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. “Bitcoin is by far the most well-known crypto asset, and for it to be very difficult for the UK public to be able to buy it, how can we claim to be a crypto hub if we only offer risky ways of buying this asset? ” said Tim Lowe, strategic adviser at London-based institutional staking firm Attestant.

This follows approval by the US Securities and Exchange Commission (SEC) of spot Bitcoin ETFs in January 2024. The government intends to legislate to bring stablecoins – where used as a means of payment – within the payments regulatory perimeter, creating conditions for stablecoins issuers and service providers to operate and invest in the UK. We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term. If your firm is looking to develop innovative propositions using crypto assets, we may be able to offer support via our Innovation Hub. “We are paying close attention to these plans and to the regulators’ plans, because we would not want our constituents to think cryptocurrencies are any less risky if they are regulated,” she said.

Cryptoassets are cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically. Economic Secretary to the Treasury Andrew Griffith said the government remained “steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes crypto-asset technology”. The Treasury says that will allow crypto to benefit from the “confidence, credibility and regulatory clarity” of the existing system for financial services, as set out in the UK’s Financial Services and Markets Act 2000 (FSMA). Today’s news also means the UK legal sector will be better equipped to respond to new technologies, attracting more business and investment to the legal services industry which is already worth £34 billion a year to the economy. Our robust approach to regulation mitigates the most significant risks, while harnessing the advantages of crypto technologies.

“But we must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards,” he added. Ministers say the measures will “mitigate the most significant risks” of crypto technologies, while “harnessing their advantages”. But it also acknowledges some crypto businesses may simply choose to continue operating in offshore jurisdictions that “do not impose equivalent market-abuse rules”.

The so-called crypto winter has raised questions about whether the industry can ever be effectively regulated. But with the right form of regulation, others will argue, the industry could truly blossom. Part of the original appeal of cryptocurrency was its independence of traditional financial networks. But I expect the consultation to be fiery, with many different groups wading into the debate about how to tame the wild beast of Bitcoin and other digital coins.

The UK continues to take purposeful steps towards regulating the cryptoassets sector, focusing especially on protecting consumers and tackling financial crime. The AML/CTF regime will aim to ensure that businesses carrying on in-scope cryptoasset activity can spot, disrupt or stop money being laundered through the system. The Treasury said late on Tuesday it would unveil a series of proposals to “regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance”. It also said it would temporarily backtrack on a previous pledge to align the regulation of crypto promotions with the standards applied to stocks, shares and insurance products.

The UK had become one of the last major markets to hold out against the trading of crypto-related securities, even though the government has been championing the country as a potential centre for digital asset markets. In his Mansion House speech in July 2021, the Chancellor set out his vision for the future of the financial services sector, which included a plan to ensure that the UK remains at the forefront of technology and innovation. This was one of four key components of that vision, with the ultimate aim of building a financial services sector that continues to be one the rest of the world looks towards. The UK Government announced the Taskforce in March 2018 as part of its wider Fintech strategy and in response to the Treasury Select Committee’s investigation into digital currencies.

In contrast, decentralisation – a commonly perceived feature of cryptocurrencies – raises regulatory concerns because it puts significant responsibility on individuals to protect their assets. The risk of people losing access to their digital wealth due to forgotten passwords or lost hardware remains a challenge for decentralisation and may strengthen the appeal of stablecoins. The government launched a consultation on cryptoassets and stablecoins last year and has today published its response setting out the next steps. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation. Learn more about our work on cryptoassets to ensure consumers are protected, market integrity is upheld, and competition works in the interest of consumers.

The Treasury has not yet confirmed which stablecoins will be regulated; well-known ones include Tether and Binance USD. Stablecoins are designed to have a stable value linked to traditional currencies or assets like gold. The final regulations are expected to be made in 2025 to come into force on 1 January 2026. While the ousted Tory government pushed to introduce new laws this summer, it will take the new Labour government at least another year to regain the momentum, says Gillian Lynch, head of Europe and Ireland at Gemini.