RegulationFeb 2 2023

Govt sets out plans for crypto regulation

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Govt sets out plans for crypto regulation
Dado Ruvic/Reuters.Representations of cryptocurrencies Bitcoin, Ethereum and DogeCoin are placed on PC motherboard in this illustration taken, June 29, 2021.
ByJane Matthews

The government has launched a consultation and set out its proposed approach for regulating cryptoassets.

In a call for evidence published yesterday (February 1) Andrew Griffith MP, economic secretary to the Treasury, said crypto technologies “can have a profound impact across financial services”.

He noted the recent turbulence in crypto markets - such as the collapse of firms like FTX - and said this highlighted the need for regulation.

“By capitalising on the potential benefits offered by crypto we can strengthen our position as a world-leader in fintech, unlock growth and boost innovation,” Griffith said.

He continued: “Effective regulation will create the conditions for crypto service providers to thrive in the UK, and give people and businesses the confidence to invest with an understanding of the often high risks involved.”

Under its proposals, the government plans to bring centralised crypto exchanges into financial services regulation for the first time, as well as other core activities like custody and lending. 

Crypto trading venues will be responsible for defining the requirements for admission and disclosure documents, while financial intermediaries and custodians, who are responsible for facilitating transactions and storing customer assets, will face more stringent rules.

While cryptocurrency is not currently regulated by the Financial Conduct Authority, digital asset service providers that operate in the UK must go through the regulator’s anti-money-laundering review process.

Around 85 per cent of crypto groups that attempted to obtain FCA registration have failed, leading to criticism from the industry that the UK has stifled innovation.

Under its proposals, the government plans to introduce a time limited exemption for firms currently authorised by the FCA so that they can continue to promote their services while a broader regulatory regime for crypto is introduced.

The government’s proposals are centred around a number of crypto activities, including exchange activities, custody activities and lending activities.

Under each of these the consultation sets out design features for the regime such as prudential requirements, data reporting, consumer protection, location policy and operational resilience.

It also proposes regimes for handling market abuse, crypto issuance and disclosures.

Calls for greater regulation of crypto grew following the sudden collapse of Sam Bankman-Fried’s $32bn empire, FTX late last year.

Back in November, a group of crypto executives told MPs they wanted more regulation and said FTX’s collapse may not have happened if proper regulation existed.

The consultation will run until April 30.