Crypto Industry calls on UK government to think globally as consultation on proposed rules closes

The UK’s crypto stakeholders have largely welcomed the country’s proposed legislation for the industry – but they want the country to work with regulators globally to avoid post-Brexit isolation, particularly in the wake of the EU’s Regulation of Markets in Crypto Assets (MiCA), a review of public comments found.

The UK has been consulting the public on its proposed strategy for the crypto sector since February, and the consultation period closed on April 30 with global industry titans submitting their views.

“This represents a welcome step towards establishing regulatory clarity for cryptoassets in the UK… These frameworks will accelerate the adoption of socially beneficial innovation, while reducing both criminal and financial risk,” said Riccardo Tordera Ricchi, head of policy at UK- based The Payments Association, in a statement to CoinDesk.

Instead of creating a whole new set of rules for the crypto space like MiCA, the UK wants to bring crypto into the scope of its existing regulatory framework, and the government may publish crypto-specific rules in the next 12 months.

“If you compare it to MiCA, where the first analysis you want to do is look at the assets, and the asset will tell you whether you fall into the regulatory area or not … here it’s a little different. It’s based on financial activity, which I have to say from a regulatory point of view is a difficult thing to deal with,” said Meiran Shtibel, assistant attorney at US-based Fireblocks.

Lobby group CryptoUK supports the government’s “same risk, same regulatory outcome” approach, Su Carpenter, director of operations at the group, said in a press release.

“It solves for the desired outcome rather than using generic rules – capturing the difficulties of new innovations, and their unique benefits/risks,” Changpeng Zhao, CEO of Binance tweeted recently.

When constructing a market abuse regime, the UK must ensure that what it sets out is consistent with other jurisdictions that host global crypto companies and can work with standard setters such as the International Organization of Securities Commissions, the Group of Seven (G7) and the Group of 20 (G20) , said Nick Taylor, head of Europe, Middle East and Africa policy at UK exchange Luno. Luno, like CoinDesk, is owned by Digital Currency Group.

CryptoUK is also asking the country to coordinate with global regulators regarding disclosure requirements for crypto companies.

“It would make sense to harmonize the regulatory regime [with global regulators]to the extent reasonably possible, to allow for as seamless a cross-jurisdictional operation as possible,” Tordera said.

In its response to the government’s proposal, AFME also warned that the UK’s planned crypto authorization regime could damage its reputation as an open market by making it difficult for foreign firms to access it. The government proposed in its consultation that the regime would require firms serving UK clients – regardless of where they are based – to register with the Financial Conduct Authority to continue operating in the country.

AFME does not recommend this approach, saying it strays too far from how the UK usually regulates financial institutions. CryptoUK called for foreign companies to be exempted from local authorization and for the government to stick to regulating companies based in the UK

The licensing regime should come with a transition period that allows crypto companies to continue operating while they go through the authorization process, AFME and Taylor suggested. CryptoUK recommended a faster process for firms already registered with the FCA – something France is considering as it prepares to implement MiCA.

“It is imperative that regulators urgently adopt a timely and proportionate approval process for complete and accurate applications, and strive to avoid duplicative information requests from businesses, considering the supervisory history of businesses during the authorization process,” Binance said in its response to the proposal.

AFME, CryptoUK and Binance also called for clarity on the scope of financial activities that fall under the existing rules, along with the treatment of assets such as non-fungible tokens (NFTs). All three parties proposed that algorithmic stablecoins should fall within UK rules – something that has been on regulators’ radar since the collapse of the Terra ecosystem in May 2022.

Britain’s Conservative government, led by Prime Minister Rishi Sunak, has said it wants to position the country as a hub for crypto, and may push to finalize relevant rules ahead of the general election, which is set for 2025 but could happen earlier .

CryptoUK expects proposed stablecoin legislation and rules for the wider crypto space – what the government refers to as the first two phases of its proposals – to be implemented by the end of 2024.

“We propose to take a broader view of all possible for the UK to deliver on its ambition to become a global hub for the crypto industry, which includes a proportionate application of FinProm [Financial Promotion] rules to trading venues, addressing concerns about banking the crypto industry, and progressive tax policies that address the nuances of the asset class,” Carpenter said in a statement.

MP Lisa Cameron told CoinDesk that she has had positive discussions with lawmakers about expanding the UK’s crypto tax framework.