Industry Updates

UK government launches pared-back crypto hub amid ‘structural vulnerability’

The Treasury’s consultation on the new regulatory regime ends on 30 April

Jamie Gordon

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The UK government has launched a consultation on building “robust” regulation on crypto issuance, trading and lending, however, plans for the digital asset hub took a more cautious tone than the vision laid out last year. 

In a statement, the Treasury said it has published “ambitious plans” to protect consumers and create economic opportunities with new regulations.

These include requiring crypto trading venues to define detailed requirements for crypto admissions and disclosures as well as ensuring crypto exchanges have “fair and robust” standards. 

The Treasury also said it would strengthen the rules surrounding financial intermediaries and custodians, including a crypto market abuse regime and a “world-first regime” for regulating crypto lending.

It added it would introduce a time-limited exemption allowing crypto businesses registered with the Financial Conduct Authority’s (FCA) for anti-money laundering purposes to issue their own promotions while the Treasury’s broader crypto regulatory regime is being implemented. Previously, this was only available to FCA-authorised firms.

The move is intended to allow promotions of crypto products and services to be held to an equivalent standard to promotions of financial services with similar risk profiles.

On the proposals, Andrew Griffith, economic secretary to the Treasury, commented: “We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology.

“But we must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards.”

On the latter point about consumer protection, the Treasury noted events such as the collapse of crypto exchanges and fund closures last year revealed frailties in the crypto industry.

As is common in emerging technology markets, the crypto sector continues to experience high levels of volatility and a number of recent failures have exposed the structural vulnerability of some business models in the sector,” it said.

Notably, the government’s consultation has no mention of some of last year’s cornerstone proposals including the regulatory ‘sandbox’ to explore the “potentially transformative benefits” of innovations such as distributed ledger technology (DLT) in UK financial markets and sovereign debt instruments.

It also did not discuss any tax arrangements to attract crypto industry participants including previous proposals to extend the tax advantages of the Investment Manager Exemption to crypto assets or favourable tax treatment for decentralised finance (DeFi) loans.

However, it did build on plans to make stablecoins a valid form of payment, stating it would look to regulate the issuance and custody of these tokens. 

Despite the risks underlined by the FTX Exchange going bust and three issuers closing crypto exchange-traded products (ETPs) last December alone, the Treasury appears committed to the opportunity offered by the growing crypto industry.

This comes after the Organisation for Economic Cooperation and Development (OECD) revealed the UK was the only G7 economy to have contracted over the past three years, with the BBC attributing some blame to the impact of Brexit on foreign direct investment and workforce.

Our robust approach to regulation mitigates the most significant risks, while harnessing the advantages of crypto technologies. This enables a new and exciting sector to safely flourish and grow, boosting jobs and investment,” the Treasury said.

The government’s consultation on its new regulatory regime will close on 30 April. Once feedback is considered and legislation built, the FCA will consult on the new rules with the crypto sector.

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