British Prime Minister Rishi Sunak speaks during a question and answer session at Teesside University on January 30, 2023.
Oli Scarf | WPA Pool | Getty Images NewsS
The UK has officially unveiled plans to regulate the cryptocurrency industry, with the government seeking to curb some of the reckless business practices that have emerged over the past year and contributed to FTX’s demise.
In a much-anticipated industry consultation launched on Tuesday, the government proposed a range of measures aimed at aligning the regulation of crypto-asset companies with that of traditional financial firms.
Among the proposals unveiled on Tuesday was a move to strengthen rules for financial intermediaries and custodians who hold crypto on behalf of clients.
A major theme that emerged in 2022 was the increase in risky loans made between multiple crypto firms and a lack of due diligence on the part of the counterparties involved in these transactions.
The UK proposals would crack down on such activities and aim to create a “robust world-first regime that strengthens the rules governing crypto asset lending, while enhancing consumer protections and corporate operational resilience,” the late statement said Tuesday.
“We remain steadfast in our commitment to growing the economy and enabling technological change and innovation — and that includes cryptoasset technology,” Andrew Griffith, Treasury Secretary for Economic Affairs, said in a statement.
“But we also need to protect the consumers who are adopting this new technology – and ensure robust, transparent and fair standards.”
The collapse of FTX has added even more urgency to attempts by global regulators to rule the anti-regulatory crypto space. The European Union and the US have already made their own proposals to improve consumer protection in crypto.
In a Dec. 2 speech, Griffith said that “recent events in the crypto market reinforce the case for timely, clear and effective regulation.”
The implosion of FTX, which was said to be using client funds for risky loans and deals, set off a chain reaction of bankruptcies for digital asset lending firms exposed to the crypto giant, including Digital Currency Group’s BlockFi and Genesis Trading.
The proposals unveiled on Tuesday would also enforce stricter transparency requirements on crypto exchanges to ensure they publish relevant disclosure documents and set clear eligibility requirements for trading digital tokens.
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Another measure would relax the strict rules governing crypto advertising, allowing firms with a registration with the Financial Conduct Authority to issue their own promotions while the broader crypto regime is rolled out.
The regulatory move comes as crypto firms, both in the UK and beyond, feel the chills of a deep downturn known as “crypto winter.”
Company valuations are being slashed by investors following the FTX explosion and a plunge in crypto prices, while the industry has also been plagued by numerous rounds of layoffs. Last week, London-based crypto exchange Luno cut 35% of its workforce, impacting over 330 jobs.
Regulation takes time. It will likely take years for the measures to be approved by Parliament. The Financial Services and Markets Bill, which would recognize crypto assets as regulated products, is still on its way through Parliament. The law aims to make the country’s financial sector more competitive after Brexit.
Nonetheless, according to some industry executives, even the simple display of being perceived as an agent is important.
“Having a regulatory roadmap or direction will be very useful for the UK as a crypto hub,” Julian Sawyer, CEO of Standard Chartered-backed crypto custody services firm Zodia Custody, said in an interview with CNBC on Tuesday.
Sawyer, who formerly co-founded British fintech firm Starling and led crypto exchange Gemini’s international expansion, said it’s also important to ensure “a general alignment between global markets in terms of approach to digital assets.”
He noted that the European Union is a step ahead with its law on markets in crypto assets, which is expected to come into force in 2024.
Bitcoin, which is secretly up about 40% since early 2023, was trading flat at $23,103 on Wednesday.
Global crypto hub ambitions
Rishi Sunak, who took over as UK leader in October 2022, is seen by market participants as a crypto-friendly Prime Minister, having previously said he is “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology.” do.
As London looks to compete with the EU’s financial hubs post-Brexit, crypto could be a way to boost its chances, industry insiders have previously said.
“There is an opportunity to bring clarity to the industry and allow it to play its part in fulfilling its mandate of encouraging business to invest, innovate and create jobs in the UK,” said Jordan Wain, Head of Public UK politics at Chainalysis, CNBC said in November.
The Sunak administration will consult plans to introduce a new set of rules tailored for crypto companies to complete the consultation by April 30, after which it will formulate more detailed rules.
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