The UK government has announced that it plans to regulate crypto under its existing financial services regime. Under the proposals, crypto will be subject to the UK Financial Services and Markets Act 2000 and under the remit of the UK Financial Conduct Authority, and the existing market abuse regime for financial instruments will apply.
The United Kingdom (UK) aims to keep up with the regulatory wave that is expected to arise in the European Union (EU) following the European Council’s approval of the Markets in Crypto-Assets Regulation, or “MiCA”.
The government released a consultation paper on 1 February 2023 on its proposals, which aim to strike a balance between managing potential consumer and stability risks and creating a financial environment in which cryptoasset service providers can operate, innovate and grow.
The proposals build on existing government proposals, which focused on stablecoins and the financial promotion of cryptoassets, and will seek to regulate cryptoasset activities “consistent with [the government’s] approach to traditional finance” on a “same risk, same regulatory outcome” basis.
The legislative foundation for the regulation of cryptoasset promotion activities and stablecoins (which is the first phase of government efforts, given their likely wide usage) is the Financial Services and Markets Bill (the “Bill”). The Bill (which is currently passing through the House of Lords) envisions that instead of producing substantial new legislation, the government will use the existing financial services regulatory framework to bring the regulation of stablecoins and promotions into the scope of the Financial Services and Markets Act 2000 and under the remit of the Financial Conduct Authority.
The second intended phase of government efforts is to regulate a broader range of cryptoasset activities (such as trading, investment or custody) which are considered to be high risk and high opportunity. The government also intends to introduce a cryptoassets market abuse regime which will be based on the existing market abuse regime for financial instruments. Likewise, the government is also consulting on its proposal to regulate cryptoasset lending platforms, including by way of the maintenance of clear contractual terms of ownership, risk warnings to customers and adequate financial resources.
The UK government is demonstrating its appetite for the UK to grow into a global hub for cryptoasset technology, whilst seeking to protect consumers and provide for a stable sector within which to operate. It follows on from the regulatory wave that is expected to arise in the EU following the European Council’s approval of the MiCA (see our article ‘EU Regulation Aims To Bring Confidence To Crypto Market’ – a link to that full article can be found here.)
The consultation will close on 30 April 2023, and stakeholders can submit their responses to cryptoasset.consultation@hmtreasury.gov.uk.
