The government promises robust crypto regulation

The government has published proposals for the regulation of cryptoassets which it hopes will “manage” the risks to the “turbulent industry”.

The sector has had a disastrous year, with assets collapsing in value by an estimated 75% from their peak of around $3 trillion in November 2021.

Ministers estimate that up to 10% of UK adults now own some form of crypto.

They plan to use existing regulations for the industry, rather than create a bespoke regime.

The Treasury says it will allow crypto to benefit from the “trust, credibility and regulatory clarity” of the existing financial services system, as set out in the UK’s Financial Services and Markets Act 2000 (FSMA).

It wants to create a level playing field between traditional and emerging financial services, where the principle is “same risk, same regulatory outcome”.

But it also acknowledges that some crypto businesses may simply choose to continue operating in offshore jurisdictions that “do not impose equivalent market abuse rules”.

The Finance Ministry says its proposals – which it is now consulting on – will:

The ministers say the measures will “mitigate the most significant risks” of crypto-technologies while “exploiting their benefits”.

Economic Secretary to the Treasury Andrew Griffith said the government remained “steadfast in our commitment to growing the economy and enabling technological change and innovation – and this includes crypto-asset technology”.

“But we must also protect consumers who embrace this new technology – to ensure robust, transparent and fair standards,” he added.

Even as the crypto market boomed, in 2021, calls for regulation were loud.

After the chaos of 2022, the calls for order are now deafening.

Hundreds of billions of pounds were wiped from the crypto landscape and companies and people went bankrupt thanks to scandal after scandal.

Britain’s plan to finally put concrete proposals in place will be welcomed by consumer investors who are being hit in the pocket.

But I expect the consultation to be heated, with many different groups wading into the debate about how to tame the wild beast of Bitcoin and other digital coins.

Part of the original appeal of cryptocurrency was its independence from traditional financial networks.

Moves to allow establishment controls will anger a core group of true believers.

But with the right kind of regulation, others would argue, the industry could really flourish.

But since then, the industry worldwide has been hit by a series of crises – most recently, the collapse of the FTX exchange, which prosecutors have described as “one of the largest financial frauds in US history”.

The so-called crypto winter has raised questions about whether the industry can ever be effectively regulated.

Conservative MP Harriett Baldwin, who chairs the finance committee, told BBC News they had heard evidence of “really wild west behaviour” but also recognized there was “valuable technological innovation going on that could benefit the UK economy”.

“We are paying close attention to these plans and to the regulators’ plans, because we don’t want our constituents to think that cryptocurrencies are less risky if they are regulated,” she said.

Jason Guthrie, European head of digital assets at financial firm Wisdom Tree, said the sector had a bright future. “The devil would be in the details,” he told BBC News, but he “certainly welcomed” regulators looking at cryptocurrency — and proper regulation would be in the interests of the industry as well as customers.

“Having a solid regulatory framework, having enforcement capabilities, is very important for consumer confidence,” Guthrie said.

“The earlier we have details about specific proposals, the easier it is to plan for and build towards.”

Jeremy Barnett, Associate Professor and Honorary Professor of Algorithmic Regulation, at University College London, said the UK had a lot to gain, as entrepreneurs are currently choosing to set up elsewhere.

“If you don’t have a proper regime, you drive people out,” he said.

“I want to see people who have cryptocurrency services and products encouraged to open up for business in the UK.

“We should be in this space – but it needs to be regulated and monitored.”

The government’s hearing of the proposals ends on 30 April, with any responses then processed by the ministers.

Once any legislation is brought before Parliament, it will be the task of the regulator, the Financial Conduct Authority, to draw up the detailed rules the sector must follow.