Cracking Down on Crypto: UK's New Regulatory Framework
Britain's Treasury proposes framework for cryptocurrency exchanges and stablecoins regulation
Here's the lowdown on the UK's latest move to tighten the reins on the wild, wild crypto world. UK Finance Minister Rachel Reeves has unveiled plans for a hard-hitting regulatory regime for digital assets.
Let's Get Regulated
Draft legislation is on the cards, aiming to snare crypto exchanges, dealers, and agents in a formal regulatory net. As part of this crackdown, the UK is eyeing closer cooperation with the US, favoring a more collaborative approach compared to the EU's industry-specific rules.
This regulatory overhaul covers a broad spectrum of crypto activities, from stablecoins to staking and custody services, as well as trading platforms. The government aims to wrap up the legislation by year-end.
On the Rise
Interestingly, this regulatory push comes at a time when cryptocurrency ownership is on the upswing among British folk. Government figures reveal that around 12% of adult Brits have dabbled in digital dough, up from a measly 4% in 2021.
Pushing the Right Buttons
Key activities requiring authorization under this new regime include stablecoin issuance, providing custody services, operating trading platforms, dealing in crypto as a principal or representative, arranging crypto transactions, and offering staking services.
UK-based stablecoin issuers will fall under the new regulatory umbrella, while those based elsewhere will escape scrutiny, for now.
Working Together for a Better Tomorrow
Minister Reeves underlined the importance of global partnership in implementing effective crypto regulations. She's been chatting with US Treasury Secretary J. A. Bassett about digital asset regulations, with further talks slated for June.
"For the UK to reign supreme in digital assets, international collaboration is essential," Reeves told attendees at an annual summit organized by fintech industry group Innovate Finance.
The UK government's statement emphasized that the regulatory approach is designed to nip out "bad apples" while supporting promising innovations. Reeves stressed that regulations must cater to businesses, not shackle them.
Make Your Move
Crypto insiders have criticized the Financial Conduct Authority (FCA)—the UK's financial services watchdog—for being overly stringent when it comes to granting registrations to digital asset firms. The FCA is responsible for registering crypto firms operating within UK money laundering regulations.
The geographic scope of the new regulations implies that any firm directly or indirectly dealing with UK consumers must secure authorization, regardless of their location. Additionally, firms providing custody or staking services must secure authorization if they operate in the UK or serve UK consumers.
Firms involved in truly decentralized finance (DeFi) activities, where no identifiable controlling party exists, will escape regulatory oversight.
The draft legislation will also revise the Financial Promotion Order 2005. Crypto firms authorized under the new regime will be allowed to approve their own promotions, replacing temporary provisions that only allowed registered but unauthorized firms to do so.
Additional amendments will update anti-money laundering regulations, with authorized crypto firms no longer needing separate registration but still required to comply fully with existing requirements.
The Financial Conduct Authority will create an application window before full implementation, allowing existing crypto firms to apply for authorization. Companies that miss out on authorization during the transition period will face a two-year wind-down period during which they can maintain pre-existing contracts but must halt all new business involving UK consumers.
Stay tuned for the final Financial Services Growth and Competitiveness Strategy, slated for publication on July 15. The Treasury plans to introduce the final legislation "at the earliest opportunity."
- Amidst the UK's stricter regulations on cryptocurrency, investments in bitcoin, Ethereum, and other digital assets continue to surge, as government data shows an increase in cryptocurrency ownership from 4% to 12% among British adults.
- Within the new regulatory framework, key activities such as stablecoin issuance, trading platform operation, crypto dealing, and staking services will require authorization, with the UK seeking closer cooperation with the US in implementing digital asset regulations.
- The UK government's efforts to regulate cryptocurrency through its new framework aim to balance supporting promising innovations with rooting out "bad apples," while also revising the Financial Promotion Order 2005 and updating anti-money laundering regulations to ensure compliance.
