British regulators have come up with a draft legislation to bring some clarity and customer protection to the UK crypto sector.
On Tuesday, the UK HM Treasury and Chancellor Rachel Reeves unveiled the new proposed rules for firms operating in the crypto sector, including crypto exchanges, dealers and agents.
The legislation is supposed to separate so-called “bad actors” that might take advantage of consumers investing in this innovative yet unregulated financial sphere from the legitimate entities ready to comply with the stricter rules on transparency, consumer protection, and operational resilience. The provisions for operating in the UK crypto space will be similar to those characteristic of the traditional finance.
The new regime is based on proposals published by the Treasury in October 2023. The regulation intends to bring several crypto asset activities, such as custody, lending, and centralised cryptoasset exchanges, into the regulatory perimeter for financial services for the first time.
Therefore, running a crypto trading platform in the UK would become a regulated activity. Any company that wants to offer these services in the UK would need to be approved and monitored by the Financial Conduct Authority (FCA). Besides, such companies would now be subject to stricter rules for sharing information (disclosures) and preventing market abuse (like insider trading), just like all other financial firms in the country.
According to the draft, crypto assets, broadly defined, should be included in the list of ‘specified investments’ under the framework established by FSMA, which regulates general financial services, rather than face standalone compliance rules.
As for stablecoins, a new rule would require anyone issuing them in the UK to be regulated. The government also eventually plans to update the existing payment rules (the Payment Services Regulations 2017) so that using stablecoins for payments is properly regulated, too. However, so far, these amendments have been postponed. Beyond that, stablecoins would follow the same compliance procedures as other cryptoassets, basically centred on keeping customers’ assets safe.
The UK government estimates that around 12% of UK adults currently own or have owned crypto in the past. This number went up significantly in recent years, increasing from just 4% in 2021. The general public awareness of crypto assets, as well as the average value of cryptocurrencies held by individual investors in the country, also increased. However, the vast majority of UK consumers stated they would only trust a financial product from a regulated financial provider, enhancing the urgency for local crypto regulations.
The government is still focused on making the UK a world leader in digital assets, as part of its Plan for Change to boost the economy, encourage innovation, and keep customer assets secure.
“Through our Plan for Change, we are making Britain the best place in the world to innovate — and the safest place for consumers. Robust rules around crypto will boost investor confidence, support the growth of Fintech and protect people across the UK.”
Rachel Reeves, Chancellor of the Exchequer
