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On Monday, the UK announced its intention to implement its first set of regulations to govern the crypto sector, mandating that market participants obtain authorization before offering services to consumers.
While cryptoassets represent a small portion of the global financial system, the recent collapse of the crypto exchange FTX raised concerns about links to mainstream finance and potential harm to consumers. In contrast, the European Union has already begun deploying comprehensive rules for cryptoasset markets, attracting crypto firms looking for regulatory certainty.
The UK’s finance ministry confirmed that it will proceed according to its proposal from a February public consultation. The regulations will require firms engaging in cryptoasset activities to obtain authorization from the Financial Conduct Authority. However, no specific start date was provided.
The rules, which draw from lessons learned from the FTX collapse, primarily focus on cryptoassets like bitcoin and the underlying distributed ledger technology (DLT) or blockchain that supports the sector. These technologies are seen as promising for applications such as securities settlement.
The ministry emphasized that companies dealing directly with UK retail consumers should be authorized, regardless of their location. The regulations cover various activities, including offering cryptoassets, operating trading platforms, exchanging cryptoassets for traditional currencies, facilitating investments and lending in cryptoassets, and providing safekeeping or custody services.
These new rules will be incorporated into existing market law, rather than forming a standalone regulatory framework. While the implementation of crypto regulation may not be straightforward, it is necessary for the UK to attract crypto businesses to avoid falling behind as the market evolves rapidly.
The UK government’s stance aligns with the EU’s approach, reflecting its commitment to fostering a regulatory environment that encourages innovation while ensuring financial stability. The treasury aims to provide clarity to the sector and plans to present secondary legislation to parliament next year.
Crypto companies in the UK currently face requirements related to anti-money laundering safeguards, and the country introduced rules this month governing the marketing of cryptoassets. The UK’s move comes as the crypto sector experiences a resurgence, with bitcoin reaching its highest value in nearly a year and a half.
The finance ministry also announced its intention to regulate stablecoins, digital currencies backed by government-issued currencies for retail payments, and will present legislation in 2024 to grant the FCA powers to oversee them. Additionally, the ministry plans to set out regulations on managing the failure of a major stablecoin.
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