The UK government is pushing ahead with plans to bring the cryptocurrency industry under the umbrella of financial services regulation even after the collapse last year of several high-profile digital asset firms attacking retail investors.
The Treasury said at the end of Tuesday that it will open a series of proposals to “manage a wide suite of cryptoasset activities, consistent with the approach to traditional finance”. It also said it would backtrack on previous promises to align the regulation of crypto promotions with the standards that apply to stocks, shares and insurance products.
The move follows a year of acute turmoil in the digital asset industry, which has included the collapse of Sam Bankman-Fried’s FTX cryptocurrency empire and lender Celsius, leaving individuals around the world with billions of dollars in frozen funds. The value of the 500 largest crypto tokens also fell by $1.7tn last year.
A Treasury insider said the aim of the reforms was to move Britain’s crypto regulatory regime to a more “neutral” position after suggesting that the rules were previously too lax. “We want to be a global crypto hub,” said one. “But we’re adjusting the dial to reflect new market events. No one is free riding to hurt consumers.
After recent scandals in the crypto sector, the Treasury has reduced its importance in the UK’s efforts to find growth. “It’s relatively small,” said one Treasury official.
Tulip Siddiq, the Labor shadow city minister, said the UK’s main opposition party has been “calling for a crackdown on wild-west crypto for months”. He added: “All the Conservatives have promised is further consultation – we need to act now.”
The Treasury also said on Tuesday that it would strengthen rules around companies that facilitate crypto transactions and protect customer assets.
Cryptocurrency activities are not currently regulated by the UK Financial Conduct Authority; However, digital asset service providers operating across national borders must go through the watchdog’s anti-money laundering review process. Around 85 percent of crypto groups that tried to apply for FCA registration failed, prompting criticism from the industry that the UK was stifling innovation.
The government also said on Tuesday that it plans to open a temporary exemption that would allow crypto companies registered on the anti-money laundering list to promote their services to the public even as a broader regulatory regime for crypto activities is introduced.
The FCA currently does not monitor financial promotions but the government promised last year to seek to change the law to give the FCA supervision of cryptocurrency marketing “in line with the same high standards as other financial promotions such as stocks, shares and insurance. products are held for”.
“We have been clear about the need for the financial promotion regime to be extended to cover crypto assets. Cryptoasset business marketing to UK consumers, including overseas companies, should start preparing now for this regime,” said the FCA.