Britain declared on Monday that it will enact its inaugural set of regulations aimed at the cryptocurrency sector. The rules will necessitate market participants to secure authorisation before offering services to consumers.
Although cryptocurrencies constitute a small fraction of the global financial system, bitcoin’s price has shown resilience after the downfall of the crypto exchange FTX raised questions about its ties to mainstream finance and potential risks to consumers.
The European Union has already begun implementing the world’s first comprehensive regulatory framework for the cryptoasset markets since June. This has made the bloc an attractive location for crypto firms seeking regulatory clarity.
Britain’s finance ministry revealed its plans to proceed as initially proposed in a February public consultation. It will require businesses involved in cryptoasset activities to obtain authorisation from the Financial Conduct Authority (FCA), although no start date was specified.
The forthcoming regulations will draw insights from the FTX debacle. They will focus on cryptoassets like bitcoin and the underlying Distributed Ledger Technology (DLT) or blockchain, which supports the sector and holds promise for applications such as securities settlement.
“The government’s position is that firms dealing directly with UK retail consumers should be required to be authorised irrespective of where they are located,” stated the ministry.
The new guidelines will encompass a range of activities, including offering a cryptoasset, running a trading platform, exchanging cryptoassets for currencies like sterling, organising investments, lending in cryptoassets, and providing safekeeping or custody services.
The ministry noted that the new rules would fall under existing market law, rather than establishing a separate framework.
Jonathan Cavill, a lawyer at Pinsent Masons said, “It’s unlikely that crypto regulation will be easily shoe-horned into the existing regulatory framework.”
“The reality is that as the market develops at pace, the UK runs the risk of being left behind if it fails to attract crypto businesses.”
The finance ministry affirmed Britain’s commitment to fostering a regulatory landscape conducive to innovation while preserving financial stability. This is aimed at ensuring that people can reliably and safely utilise emerging technologies.
The ministry intends to expedite the overall implementation of the new regulations, with secondary legislation to be presented to parliament next year.
“At a high level, the Treasury’s approach is broadly consistent with what we have seen in the EU,” said Sophia Le Vesconte, fintech counsel at Linklaters law firm.
Crypto firms currently only need to maintain anti-money laundering precautions, although Britain has recently instituted rules governing the marketing of cryptoassets.
This announcement comes as cryptocurrencies, particularly bitcoin, recover value following a period marred by scandals such as the FTX collapse. Last week, bitcoin reached $38,872, its highest level in nearly 18 months, amid growing speculation of an upcoming exchange-traded bitcoin fund in the United States.
The ministry also revealed plans to regulate stablecoins, digital currencies pegged to government-issued currencies, for retail payments. Legislation is expected in 2024 to grant the FCA authority over them.
Additionally, the ministry plans to outline regulations on managing the collapse of a significant stablecoin.