Britain prepares to bring in crypto regulation
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The UK government is reportedly finalising plans for a package of sweeping rules to regulate the cryptocurrency industry and impose order on the “wild west” of finances.
The new regulations would include limits on foreign companies selling into the UK, provisions for how to deal with the collapse of companies and restrictions on the advertising of products, according to the Financial Times.
The proposed regulation would come shortly after the implosion of FTX, which served to raise awareness of the risks that come with crypto transactions and the need for regulatory oversight.
In April, Rishi Sunak in his then role as Chancellor of the Exchequer spoke of making the UK a post-Brexit “crypto hub,” announcing a plan for government oversight of stablecoins and said it would consult on regulating a wider set of cryptoasset activities.
Sunak added that “effective regulation” would encourage “the businesses of tomorrow to invest, innovate and scale up on UK shores”.
The Financial Conduct Authority this year began inspecting the money-laundering controls of UK-based crypto companies. However, the watchdog currently lacks broader powers to protect crypto consumers in areas such as mis-selling, false advertising, fraud and mismanagement.
In contrast, the new rules could enable the FCA to oversee crypto more broadly, including monitoring how companies operate and advertise their products.
They added there would be restrictions on selling into the UK market from overseas and that the proposals would set out how crypto companies could be wound down. The powers will be part of the financial services and markets bill, a wide-ranging piece of legislation that is going through parliament.
“Yes, there are questions about the future of crypto — but we’d be foolish to ignore the potential of the underlying technology,” City minister Andrew Griffith recently told an event in Edinburgh.
He said the financial services bill would establish a framework for regulating cryptoassets and stablecoins, and that the government would be “consulting on a world-leading regime for the rest of the cryptoasset market later this year”.
Stablecoins are cryptoassets whose value is linked to a highly liquid traditional asset such as the US dollar or the UK pound.
“The UK is committed to creating a regulatory environment in which firms can innovate, while crucially maintaining financial stability and regulatory standards so that people and businesses can use new technologies both reliably and safely,” a Treasury spokesperson told the Financial Times.
“The government has already taken steps to bring certain cryptoasset activities into the scope of UK regulation — and will consult on proposals for a broader regulatory regime.”
The Financial Conduct Authority reportedly started investigating various UK-based crypto firms this year. On Wednesday, it will quiz experts from the FCA and Bank of England on the risks and benefits of central bank-issued cryptocurrency, known as CBDC.
In July, the European Commission, EU lawmakers and member states reached an agreement on what has been considered the first major regulatory framework for the cryptocurrency industry.
The new regulations, known as the Markets in Crypto-assets (MiCA) law, will require cryptocurrency companies to obtain a licence and meet struct capital and consumer protection rules in order to be allowed to operate in the EU.
Overall, the total value of the market has fallen from $3tn (£2.5tn) last year to less than $900bn. This has had a knockout effect on economies that had heavily invested in these assets, such as El Salvador. Moreover, authorities are also said to be concerned about the possible exploitation of crypto-assets for laundering ill-gotten gains and evasion of sanctions — particularly after Russia’s ongoing invasion of Ukraine.
Last year, the UK banned Binance, one of the world’s largest cryptocurrency exchanges, from operating in the UK, as it lacked regulatory permissions. In June, Scotland Yard said it had seized a record £114m of Bitcoin as part of an investigation into money laundering offences.
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