The UK is starting to take crypto regulation seriously
by Jason Tucker-Feltham, Head of Crypto Sales, IDnow
When he held the position of chancellor of the exchequer, one of Rishi Sunak’s key aims was to establish the UK as, in his words, ‘a global hub for crypto asset technology’. Announcing his ambitions at the beginning of April 2022, few could have anticipated that he’d be in the country’s top job less than seven months later.
Despite all he has had to deal with since he made the move to 10 Downing Street, crypto has remained a focus for Sunak. In the clearest sign yet that the government is serious on all matters relating to it, it has recently published a consultation paper entitled ‘The Future Financial Services Regulatory Regime for Crypto Assets’.
The paper outlines the desire for the UK to be a world leader in the field, in terms of the openness, regulation and technological advancement in its capital markets. Should the country be successful in meeting these aims, it will mark the beginning of the UK taking proactive steps to harness the opportunities brought about by new financial technologies. In turn, there will be a knock-on effect of positivity across the entire financial services sector.
The trouble with regulation
Regulation in crypto is notoriously difficult, owing to its novel and ever-changing ecosystem, but the importance of investor safety is at the heart of the HM Treasury consultation paper.
Brexit has of course played a part in the UK having to undertake its own in-depth look at the issue, rather than adopting an EU-wide stance. The union’s creation of its Markets in Crypto Assets (MiCA) regulatory framework marked a step change for the entire world, being the most substantive of its kind anywhere on the planet.
The UK’s departure from the EU has subsequently had a dual impact on regulation in this country; firstly, the MiCA framework will of course not apply to service providers based on these shores and secondly, any UK provider which may wish to offer its services to EU investors will need MiCA authorisation so that the continental investor is protected.
A matter of timing
The recent spectacular and very public collapse of FTX has forced the arm of regulators into re-examining their timelines around crypto asset regulation. However, for the UK government, the timing of the paper’s publication in the immediate aftermath of the FTX scandal could not have been much better. Publishing the consultation paper straight after such a big-name collapse will calm investors, and subsequently providers, alike.
As well as information on the current regulatory landscape for the various different forms of crypto assets and how they are traded around the world, the paper also contains advice and guidelines on investment and portfolio management.
A path to crypto regulation
Vitally, the paper also features a proposed policy approach to crypto assets in the UK. It suggests that most initial coin offerings should be classified as securities offerings, which would result in the equivalent of client asset segregation requirements being applied to crypto assets. This would mean that the future proposed crypto regulatory requirements would fall under the UK’s Financial Services and Markets Act 2000.
Such a move would give the UK a much clearer direction of travel towards regulation. A balanced and well-thought-out framework can lay the foundations for the UK achieving Rishi Sunak’s ambitions and becoming a major global hub for cryptoassets. It would also be welcomed by financial institutions too as at last there would be clear rules for trading cryptoassets in and away from the UK with a previously unprecedented level of certainty.
The integration of know your customer (KYC) processes into the regulatory landscape are an important part of crypto exchanges protecting both their customers and themselves from fraud and money laundering, no matter in which direction it may go on to shift. The reassuring presence of KYC protects investors from financial losses and helps bring a sense of stability to what is a notoriously volatile market. With scalable, advanced anti-fraud solutions, KYC can become an enabler for crypto exchanges, not a burden.
Using your voice to shape the regulation
The important thing to note about ‘The Future Financial Services Regulatory Regime for Crypto Assets’ is that it is a consultation paper rather than something impenetrable surrounded by layer upon layer of bureaucracy.
Feedback on its policies and legislative proposals is encouraged from those inside and outside Westminster and will be gathered during a programme of stakeholder engagement. It is hoped that the establishment of a clear regulatory framework which both supports innovation and protects consumers will follow.
Its closeness to the MiCA framework will of course remain to be seen, but one thing is certain: it will bring the UK another step closer to achieving its ambition of becoming a global crypto asset hub.