UK Treasury Unveils Cryptoasset Regulatory Framework – Here’s What You Need to Know
The UK government has unveiled a comprehensive cryptoasset regulatory framework in response to the end of a consultation period on cryptocurrencies.
With these proposals, the UK government is taking significant steps toward its unprecedented goal of encompassing several cryptoasset activities within the regulatory framework of financial services, such as by providing firms dealing directly with UK retail consumers with authorization requirements, regardless of their location.
Treasury Minister Andrew Griffith said in the UK Treasury’s press release on Monday that the final framework, published following a crypto consultation in February which concluded in April, seeks to help the UK become a “global hub for cryptoasset technologies” while also making the UK a more appealing choice for starting and scaling cryptoasset businesses.
“The proposals plan to create the conditions for cryptoasset service providers to operate and grow in the UK, whilst managing potential consumer and stability risks,” Griffith said.
Crypto Exchanges Will Need to Acquire Authorization
The documentation outlines that firms involved in cryptoasset activities will now require authorization from the UK’s Financial Conduct Authority. The authorization process will involve crypto exchanges establishing specific admission standards and necessitating full disclosures when introducing new assets.
The UK Treasury was assisted by legal and consulting firms, Crypto native firms and FinTechs, industry associations and members of the public and academia during its consultation, with Griffith acknowledging that changes were made after receiving their insight.
“While most aspects of our proposals were well-received by the large majority of respondents, we have modified certain features of our future framework to take onboard the evidence presented,” Griffith said.
The report added that the new proposed regulations will not affect cryptoassets which are specified investments that are already regulated, such as security tokens. The UK Treasury also clarified that activities relating to NFTs that are more of a digital collectible or piece of art than a financial service or product will not be subject to financial services regulation.
Decentralized Finance Escapes The Regulatory Net For Now
The framework stopped short of introducing regulations for decentralized finance (DeFi), with the report affirming that regulating DeFi would be “premature.”
“In line with consultation responses, HM Treasury recognizes that it would be premature and ineffective for the UK to regulate DeFi activities currently,” the report stated. “Instead, the government will support efforts at the international level through work at both the FSB and standard-setting bodies to inform a future domestic framework.”
In a separate document detailing the UK government’s plans for the regulation of fiat-backed stablecoins after its initial consultation in May, the UK Treasury said that it would regulate the use of fiat-backed stablecoins in payment chains, as well as regulate the activities of issuance and custody of fiat-backed stablecoins when issued in or from the UK irrespective of their uses.
The Treasury said that it plans to introduce secondary legislation in early 2024, but that date could change depending on the parliamentary schedule.