Britain lays out plans to regulate the cryptocurrency industry following the collapse of FTX
British Prime Minister Rishi Sunak speaks during a question and answer session at Teesside University, January 30, 2023.
Oils Scarf | Wpa Pool | Getty ImagesNewS
The UK has formally unveiled plans to regulate the cryptocurrency industry, with the government seeking to curb some of the reckless business practices that have emerged over the past year and contributed to FTX’s demise.
In a widely anticipated industry consultation launched on Tuesday, the government proposed a series of measures aimed at aligning the regulation of cryptocurrency activities with that of traditional financial firms.
Among the proposals unveiled on Tuesday was a move that would tighten rules targeting financial intermediaries and custodians who store cryptocurrencies on behalf of customers.
A big theme that emerged in 2022 was the increase in risky lending between multiple crypto firms and the lack of due diligence on counterparties involved in those transactions.
The UK’s proposals would crack down on such activity, seeking to establish a “robust global regime that strengthens cryptocurrency lending rules while improving consumer protection and business operational resilience,” according to a statement released on Tuesday.
“We remain steadfast in our commitment to grow the economy and enable technological change and innovation, and that includes cryptocurrency technology,” Treasury economic secretary Andrew Griffith said in a statement.
“But we must also protect the consumers who are embracing this new technology by ensuring robust, transparent and fair standards.”
The collapse of FTX has added urgency to attempts by global regulators to steer the regulatory-averse crypto space. The European Union and the United States have already presented their own proposals to improve consumer protection in cryptocurrencies.
In a Dec. 2 speech, Griffith said that “recent events in the cryptocurrency market reinforce the need for timely, clear and effective regulation.”
The implosion of FTX, which would have used client money to make loans and risky trades, has set off a chain reaction of bankruptcies for digital asset lending firms with exposure to the cryptocurrency giant, including BlockFi and Genesis Trading. Digital Currency Group.
The proposals unveiled on Tuesday would also imply stricter transparency requirements on cryptocurrency exchanges to ensure they publish relevant disclosure documents and establish clear admission requirements for trading digital tokens.
Another measure would relax strict rules on cryptocurrency announcements, allowing firms with Financial Conduct Authority registration to issue their own promotions as the broader crypto regime is introduced.
The regulatory move comes as cryptocurrency firms both in the UK and beyond are feeling the chill of a deep recession known as the ‘crypto winter’.
Companies are seeing their valuations slashed by investors following the FTX explosion and a crash in cryptocurrency prices, while the sector has also been plagued by several layoffs. Last week, London-based cryptocurrency exchange Luno cut 35% of its workforce in a move that impacted more than 330 roles.
Regulation takes time. It will probably be years before the measures are approved by Parliament. The Financial Services and Markets Bill, which would recognize cryptocurrencies as regulated products, is still making its way through Parliament. The law aims to make the country’s financial sector more competitive after Brexit.
However, according to some industry executives, simply demonstrating that you are seen as a doer is also important.
“Having a regulatory roadmap or regulatory travel direction is going to be extremely beneficial for the UK in terms of a crypto hub,” Julian Sawyer, CEO of the Standard-backed crypto custody services company, told CNBC on Tuesday in an interview. Chartered Zodia Custody. .
Sawyer, who previously co-founded British fintech firm Starling and spearheaded the international expansion of cryptocurrency exchange Gemini, said it was also important to ensure “general alignment across global markets in terms of approach to resources digital”.
He noted that the European Union was ahead of its time with its cryptocurrency markets law, which is expected to come into force in 2024.
Bitcoin, which has been stealthily up about 40% since the start of 2023, traded at a price of $23,103 on Wednesday.
Ambitions of a global crypto hub
Rishi Sunak, who took the reins as UK leader in October 2022, is seen by market participants as a crypto-friendly prime minister, having previously said he is “determined” to make the UK “the preferred jurisdiction for cryptographic and blockchain technology”.
As London looks to compete with EU financial hubs post-Brexit, cryptocurrencies could be one way to improve its chances, industry insiders have previously said.
“There is an opportunity to provide clarity to the sector and enable it to play its role in achieving its mandate to encourage businesses to invest, innovate and create jobs in the UK,” Jordan Wain, Head of Public Policy at the UK at Chainalysis, he told CNBC in November.
Sunak’s administration will consult on plans to introduce a new set of rules tailored to crypto firms, with a view to closing the consultation by April 30, after which it will formulate more detailed rules.
CLOCK: Has the cryptocurrency winter thawed?