Incoming crypto regulation has flown under the radar
The UK has finally taken steps to become a world-leading crypto hub. But what’s next for cryptocurrency regulation, asks Luno’s Global Head of Public Policy Thomas Tudehope.
While most people have been focused on the Westminster soap opera, under the radar, a seriously significant step in terms of cryptocurrency regulation has taken plan. Andrew Griffith MP and HM Treasury tabled amendments to the Financial Services and Markets Bill that will allow the UK to introduce a full comprehensive regulatory regime for crypto.
This is a big moment for the UK crypto sector, and it's something that some crypto firms operating over here have been advocating for. Those who are pro-regulation believe that this more comprehensive approach will protect consumers and give businesses certainty, allowing them to attract investment and create more jobs.
Despite many viewing the new Prime Minister as more cautious than his predecessor, it may come as a surprise to some that Rishi Sunak is known for his pro-cryptocurrency views. The former Chancellor of the Exchequer said in April 2022 that, “It's my ambition to make the UK a global hub for crypto asset technology.”
Crypto is an increasingly significant sector, attracting millions of pounds in investment and creating tens of thousands of jobs – while 10 per cent of UK adults hold or have held a crypto asset according to research by HMRC. In recent weeks, the UK was named the biggest crypto economy in Europe, accounting for $233bn in raw transaction value from July 2021 to June 2022.
While the nation’s new leader is facing a plethora of challenges in his first 100 days in office, crypto is still a strategic priority for policymakers and there has been a very significant step towards effective regulation in the UK.
The government amendments to the Financial Services and Markets Bill – passed in the Commons on October 25th before heading to the House of Lords – will allow for the introduction of a full comprehensive regulatory regime for crypto.
City Minister Andrew Griffith introduced the proposal, which will allow for the current laws regarding payments-focused instruments to be extended to stablecoins, such as Bitcoin.
His actions, which come hot on the heels of Rishi Sunak’s appointment, have been welcomed by the industry as it signals a move away from the piecemeal approach to regulation.
While this is the very start of the process, a public consultation paper was to be published next year. However, Griffith has said that the consultation on the regulatory regime will now happen before Parliament is suspended for Christmas.
As a result, the UK is now in a position to grasp the opportunities that crypto presents and catch up on the advances already made in this area in the EU through MiCA.
These amendments will give policymakers the ability to introduce a regulatory regime for crypto if they want to under the Designated Activities Regime. It is not the regulatory framework itself.
Over the coming months, we look forward to working closely with policymakers as they start shaping the specific rules and regulations to best understand how crypto’s underlying technology can be regulated whilst preserving innovation.
There are lots of international precedents that officials could look to as they begin this process. Singapore, where Luno has a full crypto licence, introduced its regime in 2019, while the EU’s MiCA regulation is about to be passed by Brussels.
The best regimes place consumer protections at their core. It is also important that all types of ‘crypto asset service provider’ (CASP) are within scope, rather than focusing on just one part of the sector.
Innovation and these tough regulatory regimes are not mutually exclusive. Consumer protection is a prerequisite for trust, which is necessary for widespread adoption, which in turn is a prerequisite for commercial success and innovation.
Aside from strong, bank-like, consumer protection requirements, we would urge policymakers to include a full suite of conduct and governance rules to ensure that CASPs are well managed.
There also needs to be standards set for outsourcing, cybersecurity and data protection. With the controls in place to prevent the use of cryptocurrency for illicit means, crypto asset service providers can live up to consistent standards.
With the UK firmly rooted as a world-leading fintech hub and crypto adoption continuing to rise, it’s the right time for the government to take action on crypto regulation. Consumers need to be protected and businesses require certainty.
These amendments are a great step in the right direction. A holistic regulatory framework will unleash innovation in the sector, help to create thousands more highly-skilled jobs, and attract significant investment into the UK.
The views and opinions expressed are not necessarily those of AltFi.