UK Government Promises New Crypto Regulation

The UK Government has published a paper with proposals for crypto-asset regulation. The document lays out how it is hoped regulation can manage risks that arise in the turbulent world of cryptocurrencies. Bad news from the sector has never been far from the news in recent months. Asset values have collapsed by around 75% from their peak in November 2021. At the time, their value was estimated to be approximately $3 trillion.

It is estimated that around 10% of adults in the UK now own some form of crypto. PayPal has recently started to accept crypto payments. Microsoft, AT&T and Starbucks all allow bit-coin transactions on their websites. According to kasynainternetowe23.net, a Polish language analysis site, Ethereum and other coins are accepted at various online casinos. The UK government plans to use existing regulatory frameworks rather than creating a bespoke regime. When he was Chancellor, Rishi Sunak said he wanted to make the UK a global hub for crypto-asset technology. However, since then, there have been a series of worldwide crises and the collapse of the FTX exchange. Prosecutors have described that collapse as “one of the biggest financial frauds in US history”.

The UK Treasury says that regulation will allow crypto to benefit from the “confidence, credibility and regulatory clarity” that financial services currently benefit from. They are regulated through the UK’s Financial Services and Markets Act 2000. The current expectation is crypto will be included in this framework. The idea is to create a level playing field between emerging financial services and more traditional ones.

The principle behind the proposals is that where there is the same risk, there should be the same regulatory outcome. However, it can only apply to UK-based entities, and the proposals recognise that some crypto businesses will continue to offer off-shore services. This means that market abuse rules cannot be imposed. So while regulation is great in theory, it may be incredibly difficult to implement and police.

The proposals which The Treasury are now consulting on aim to achieve the following:-

· Lay down rules around the promotion of crypto-assets to ensure they are fair, transparent and not misleading

· Enhance the requirements around data reporting and communications with the regulators

· Put in place new regulations to prevent what is known as ‘pump and dump’. This happens when an individual artificially inflates the value of an asset before selling it.

The hope is that the measures will mitigate the risks associated with crypto. But, at the same time, the aim is to harness the advantages of these emerging assets.

Andrew Griffith, who is Economic Secretary to the Treasury, has said that the government remains ” steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes crypto-asset technology”. He then added, “But we must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards.”

This is not the first time that legislators have called for regulation of the crypto industry. However, after the recent chaos, it is now seen as imperative that action is taken to protect consumers. Hundreds of billions of pounds have been lost, and there have been multiple bankruptcies and scandals. The move to stricter regulation will be welcomed by UK investors caught up in the recent market turbulence.

However, the original appeal of cryptocurrency was that it was independent of traditional financial networks and outside of central banking systems. Establishment control will not be what true believers in crypto had in mind. While some cling to the original ideas, others say that the industry could evolve and flourish with light touch regulation. They say something must be done to regain lost confidence in blockchain technology.

The consultation on the proposals is open until 30th April. After that, the responses will be considered by Government Minister. Then, if legislation succeeds in Parliament, the Financial Conduct Authority will draw up a detailed framework for the industry to follow.