The UK government is pressing ahead with its plans to bring the cryptocurrency industry under the umbrella of mainstream financial services regulation even after last year’s collapse of several high-profile digital asset companies stung retail investors.
The Treasury said late on Tuesday it would unveil a series of proposals to “regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance”. It also said it would temporarily backtrack on a previous pledge to align the regulation of crypto promotions with the standards applied to stocks, shares and insurance products.
The move follows a year of acute turbulence in the digital asset industry, which included the collapse of Sam Bankman-Fried’s FTX cryptocurrency empire and lender Celsius, which left individuals globally with billions of dollars in frozen funds. The value of the 500 biggest crypto tokens also tumbled $1.7tn last year.
Treasury insiders say the aim of the reforms is to move Britain’s crypto regulatory regime to a more “neutral” position following suggestions that its rules were previously too lax. “We do want to become a global crypto hub,” said one. “But we are adjusting the dial to reflect recent market events. Nobody is getting a free ride to cause consumer detriment.”
After recent scandals in the crypto sector, the Treasury has downplayed its significance in Britain’s efforts to find growth. “It’s relatively small,” said one Treasury official.
Tulip Siddiq, Labour’s shadow City minister, said the UK’s main opposition party has been “calling for a crackdown on the crypto wild-west for months”. She added: “All the Conservatives are promising is further consultations — we need action now.”
The Treasury also said on Tuesday that it would seek to strengthen rules surrounding companies that facilitate crypto transactions and safeguard customer assets.
Cryptocurrency activity is currently not regulated by the UK’s Financial Conduct Authority; however, digital asset service providers that operate within the country’s borders must go through the watchdog’s anti-money-laundering review process. Around 85 per cent of crypto groups that attempt to obtain FCA registration have failed, stirring criticism from the industry that the UK has stifled innovation.
The government also on Tuesday said it planned to open up a temporary exemption that would allow crypto companies registered on the anti-money-laundering list to promote their services to the public even while a broader regulatory regime for crypto activity is introduced.
The FCA does not currently oversee financial promotions but the government vowed last year that it would seek to change the law to give the FCA oversight of most cryptocurrency marketing “in line with the same high standards that other financial promotions such as stocks, shares and insurance products are held to”.
“We have been clear on the need for the financial promotions regime to be extended to cover cryptoassets. Cryptoasset businesses marketing to UK consumers, including firms based overseas, must start getting ready now for this regime,” said the FCA.