Incoming crypto regulation has flown under the radar

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Opin­ionAlter­na­tive Lend­ingDig­i­tal Bank­ingSav­ings and Invest­mentCryp­to

The UK has final­ly tak­en steps to become a world-lead­ing cryp­to hub. But what’s next for cryp­tocur­ren­cy reg­u­la­tion, asks Luno’s Glob­al Head of Pub­lic Pol­i­cy Thomas Tudehope.

Incoming crypto regulation has flown under the radar

Image source: Shutterstock

While most peo­ple have been focused on the West­min­ster soap opera, under the radar, a seri­ous­ly sig­nif­i­cant step in terms of cryp­tocur­ren­cy reg­u­la­tion has tak­en plan. Andrew Grif­fith MP and HM Trea­sury tabled amend­ments to the Finan­cial Ser­vices and Mar­kets Bill that will allow the UK to intro­duce a full com­pre­hen­sive reg­u­la­to­ry regime for crypto.

This is a big moment for the UK cryp­to sec­tor, and it’s some­thing that some cryp­to firms oper­at­ing over here have been advo­cat­ing for. Those who are pro-reg­u­la­tion believe that this more com­pre­hen­sive approach will pro­tect con­sumers and give busi­ness­es cer­tain­ty, allow­ing them to attract invest­ment and cre­ate more jobs.

Despite many view­ing the new Prime Min­is­ter as more cau­tious than his pre­de­ces­sor, it may come as a sur­prise to some that Rishi Sunak is known for his pro-cryp­tocur­ren­cy views. The for­mer Chan­cel­lor of the Exche­quer said in April 2022 that, “It’s my ambi­tion to make the UK a glob­al hub for cryp­to asset technology.”

Cryp­to is an increas­ing­ly sig­nif­i­cant sec­tor, attract­ing mil­lions of pounds in invest­ment and cre­at­ing tens of thou­sands of jobs – while 10 per cent of UK adults hold or have held a cryp­to asset accord­ing to research by HMRC. In recent weeks, the UK was named the biggest cryp­to econ­o­my in Europe, account­ing for $233bn in raw trans­ac­tion val­ue from July 2021 to June 2022.

While the nation’s new leader is fac­ing a pletho­ra of chal­lenges in his first 100 days in office, cryp­to is still a strate­gic pri­or­i­ty for pol­i­cy­mak­ers and there has been a very sig­nif­i­cant step towards effec­tive reg­u­la­tion in the UK.

The gov­ern­ment amend­ments to the Finan­cial Ser­vices and Mar­kets Bill – passed in the Com­mons on Octo­ber 25th before head­ing to the House of Lords – will allow for the intro­duc­tion of a full com­pre­hen­sive reg­u­la­to­ry regime for crypto.

City Min­is­ter Andrew Grif­fith intro­duced the pro­pos­al, which will allow for the cur­rent laws regard­ing pay­ments-focused instru­ments to be extend­ed to sta­ble­coins, such as Bitcoin.

His actions, which come hot on the heels of Rishi Sunak’s appoint­ment, have been wel­comed by the indus­try as it sig­nals a move away from the piece­meal approach to regulation. 

While this is the very start of the process, a pub­lic con­sul­ta­tion paper was to be pub­lished next year. How­ev­er, Grif­fith has said that the con­sul­ta­tion on the reg­u­la­to­ry regime will now hap­pen before Par­lia­ment is sus­pend­ed for Christmas. 

As a result, the UK is now in a posi­tion to grasp the oppor­tu­ni­ties that cryp­to presents and catch up on the advances already made in this area in the EU through MiCA. 

These amend­ments will give pol­i­cy­mak­ers the abil­i­ty to intro­duce a reg­u­la­to­ry regime for cryp­to if they want to under the Des­ig­nat­ed Activ­i­ties Regime. It is not the reg­u­la­to­ry frame­work itself. 

Over the com­ing months, we look for­ward to work­ing close­ly with pol­i­cy­mak­ers as they start shap­ing the spe­cif­ic rules and reg­u­la­tions to best under­stand how crypto’s under­ly­ing tech­nol­o­gy can be reg­u­lat­ed whilst pre­serv­ing innovation.

There are lots of inter­na­tion­al prece­dents that offi­cials could look to as they begin this process. Sin­ga­pore, where Luno has a full cryp­to licence, intro­duced its regime in 2019, while the EU’s MiCA reg­u­la­tion is about to be passed by Brussels.

The best regimes place con­sumer pro­tec­tions at their core. It is also impor­tant that all types of ‘cryp­to asset ser­vice provider’ (CASP) are with­in scope, rather than focus­ing on just one part of the sector.

Inno­va­tion and these tough reg­u­la­to­ry regimes are not mutu­al­ly exclu­sive. Con­sumer pro­tec­tion is a pre­req­ui­site for trust, which is nec­es­sary for wide­spread adop­tion, which in turn is a pre­req­ui­site for com­mer­cial suc­cess and innovation. 

Aside from strong, bank-like, con­sumer pro­tec­tion require­ments, we would urge pol­i­cy­mak­ers to include a full suite of con­duct and gov­er­nance rules to ensure that CASPs are well managed. 

There also needs to be stan­dards set for out­sourc­ing, cyber­se­cu­ri­ty and data pro­tec­tion. With the con­trols in place to pre­vent the use of cryp­tocur­ren­cy for illic­it means, cryp­to asset ser­vice providers can live up to con­sis­tent standards.

With the UK firm­ly root­ed as a world-lead­ing fin­tech hub and cryp­to adop­tion con­tin­u­ing to rise, it’s the right time for the gov­ern­ment to take action on cryp­to reg­u­la­tion. Con­sumers need to be pro­tect­ed and busi­ness­es require certainty.

These amend­ments are a great step in the right direc­tion. A holis­tic reg­u­la­to­ry frame­work will unleash inno­va­tion in the sec­tor, help to cre­ate thou­sands more high­ly-skilled jobs, and attract sig­nif­i­cant invest­ment into the UK.

 

The views and opin­ions expressed are not nec­es­sar­i­ly those of AltFi.

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