British Prime Minister Rishi Sunak speaks during a question and answer session at Teesside University, January 30, 2023.
Oli Scarff | Wpa pool | Getty Images News
The UK has officially outlined plans to regulate the cryptocurrency industry, with the government looking to curb some of the reckless business practices that have emerged over the past year and contributed to the demise of FTX.
In a long-awaited industry consultation launched on Tuesday, the government proposed a series of measures aimed at aligning the regulation of crypto-asset businesses with that of traditional financial firms.
Among the proposals unveiled on Tuesday was a move that would strengthen rules targeting financial intermediaries and custodians who store cryptocurrencies on behalf of clients.
A big theme that emerged in 2022 was the rise of risky loans made between multiple crypto companies and the lack of due diligence on the counterparties involved in these transactions.
The UK’s proposals would crack down on such activities, seeking to establish “a strong global regime that will be the first to strengthen rules around crypto-asset lending, while strengthening consumer protection and the operational resilience of companies”, according to a statement released on Tuesday evening.
“We remain steadfast in our commitment to growing the economy and enabling technological change and innovation — and that includes crypto-asset technology,” said Andrew Griffith, economic secretary to the Treasury.
“But we also need to protect consumers who embrace this new technology – ensuring robust, transparent and fair standards.”
The collapse of FTX has added urgency to attempts by global regulators to manage the regulation-averse crypto space. The European Union and the US have already made their own proposals to improve consumer protection in cryptocurrencies.
In a Dec. 2 speech, Griffith said that “recent events in the crypto market strengthen the case for timely, clear, and effective regulation.”
The collapse of FTX, which allegedly used client money to make risky loans and trades, set off a chain reaction of bankruptcies for digital asset lending firms exposed to the crypto giant, including BlockFi and Digital Currency Group’s Genesis Trading.
The proposals unveiled on Tuesday would also impose stricter transparency requirements on crypto exchanges to ensure they publish relevant disclosure documents and set clear access requirements for trading digital tokens.
Another measure would relax strict rules on crypto advertising, allowing Financial Conduct Authority-registered companies to issue their own promotions while a broader crypto regime is rolled out.
The regulatory move comes as crypto businesses in the UK and beyond are feeling the chill of a deep downturn known as “crypto winter”.
Investors are seeing the value of companies shrink following the FTX explosion and the fall in cryptocurrency prices, while the industry has also been hit by a number of layoffs. Last week, London-based crypto exchange Luno laid off 35% of its workforce in a move that affected more than 330 jobs.
Regulation takes time. It will likely be years before parliament approves the measures. The Financial Services and Markets Bill, which would recognize crypto-assets as regulated products, is still going through parliament. The goal of the law is to make the country’s financial sector more competitive after Brexit.
Even so, even simply showing that you’re seen as something is important, according to some industry executives.
“Having a regulatory plan or a regulatory direction of travel is going to be super helpful for the UK in terms of a crypto hub,” Julian Sawyer, CEO of Standard Chartered-backed crypto custody firm Zodia Custody, told CNBC in an interview on Tuesday.
Sawyer, who previously co-founded UK fintech firm Starling and led international expansion for crypto exchange Gemini, said it was also important to ensure “general alignment between global markets in terms of access to digital assets”.
He pointed out that the European Union has gone ahead of the game with its law on crypto-asset markets, which is expected to come into effect in 2024.
Bitcoin, which has surreptitiously risen about 40% since the start of 2023, traded flat on Wednesday at $23,103.
Ambitions of a global crypto hub
Rishi Sunak, who took over as UK Prime Minister in October 2022, is seen by market players as a crypto-friendly Prime Minister, having previously said he was “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology”.
As post-Brexit London looks to compete with the EU’s financial hubs, crypto could be a way to improve its chances, industry insiders said earlier.
“There is an opportunity to provide clarity to the industry and enable it to play its part in achieving its mandate to encourage businesses to invest, innovate and create jobs in the UK,” Jordan Wain, UK head of public policy at Chainalysis, told CNBC in November.
Sunak’s administration will consult on plans to introduce a new set of rules tailored to crypto companies, with the goal of closing the consultation by April 30, after which it will formulate more detailed rules.
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