His Majesty’s Treasury has finally released a long-awaited consultation document in preparation for the imminent regulation of cryptocurrencies in the United Kingdom. The comprehensive paper, which is 80 pages long, covers a wide variety of subjects, ranging from the challenges posed by algorithmic stablecoins to the concept of nonfungible tokens (NFTs) and initial coin offers (ICOs).
The Treasury has claimed that the recommendations aim to position the financial services sector of the United Kingdom in the forefront of crypto and to prevent harsh control measures that have gathered traction worldwide throughout the crypto winter. This is the intention behind the proposals.
It was declared by the Treasury that there would not be a distinct regulatory system for cryptocurrency since it will be governed under the framework of the Financial Services and Markets Act 2000 in the United Kingdom (FSMA). The objective is to create an environment in which crypto and conventional financial systems compete on an equal footing. However, the Financial Conduct Authority (FCA), which is Britain’s primary financial regulator, will modify the laws established by the FSMA in order to apply to the market for digital assets.
At the very least, one of the annoying effects of that ruling is that it requires participants in the cryptocurrency market to go through the registration process again. They were previously required to go through the procedure in order to get a licence under the FCA’s licencing framework, but now they will have to be evaluated “against a broader variety of indicators.”
The good news is that, unlike in the conventional banking industry, organisations dealing in cryptocurrencies won’t be required to frequently publish their market data. On the other hand, the exchanges would be obligated to store the data and ensure that it may be accessed at any time.
In contrast to several of its overseas peers, the Treasury Department has opted not to prohibit the use of algorithmic stablecoins. They will instead be classified as “unbacked crypto assets,” and not as “stablecoins,” as a result of this change. Despite this, the word “stable” cannot be used in any of the marketing for the algorithmic coins that are being done for cryptocurrencies.
According to the consultation document, a distinct regulatory framework for crypto lending platforms would be examined, and it should require lenders to take into consideration an acceptable collateral value and contingency preparations in case the participants’ main market counterparties collapse.
“Beginning immediately, the government need to promote deeper engagement with the business sector in order to design a comprehensive, risk-based framework that is in line with worldwide best practise.”
Nick Taylor, who is in charge of public policy for the EMEA region at the global cryptocurrency exchange Luno, believes that the sector is now through a watershed moment. He made the following observation: “Whilst there is still a distance to go until new laws come into place, we’re heartened by the size of the Government’s ambition.”
On April 30th, 2023, the consultation will come to an end. Up until that point, the British government is interested in hearing feedback from any and all relevant parties, including crypto companies, financial institutions, trade associations, representative bodies, academic institutions, law firms, and consumer advocacy organisations.