Following Katten’s first Crypto With Katten London Symposium, we thought it might be interesting to reflect on the key takeaways from the range of panel sessions we hosted:
Regulation of crypto assets. The regulatory landscape for cryptoassets varies around the world. On the UK and EU side, we see a more legislatively focused approach with new tailored rules for cryptoassets in the pipeline. In the US, however, “regulation by enforcement” is much more widespread. Recent market events, including the failure of FTX, reinforce the case for effective regulation and sector engagement.
Market abuse. HM Treasury’s recent consultation on the future regulation of cryptoassets in the UK sets out proposed requirements for a new market abuse regime. This will be based on elements of the existing UK market abuse regulation for more traditional investments; in-scope instruments will be crypto-assets admitted to trading on UK trading venues, and the regime will have extra-territorial effect, to counter market abuse regardless of where the trade took place or the relevant actors were located. There will also be obligations to monitor market abuse for certain market players.
Central Bank Digital Currency (“CBDC”). The latest development in the potential launch of a UK CBDC is HM Treasury and the Bank of England’s publication of a four-month consultation on a ‘Britcoin’. Although no decision has been made to introduce a CBDC at this stage, the UK appears to be ahead of other countries (including the US and EU) that are also considering similar proposals to establish local CBDCs.
Cryptoactive investment transactions. Despite declining valuations for various cryptocurrencies (ranging from 20-70%) and an overall reduction in venture capital funding, M&A activity in this area remained relatively strong in 2022. For 2023, the level of activity has so far declined compared to 2022 but mergers and acquisitions in this sector is expected to remain healthy, especially when it comes to distressed investments.
Crypto derivatives. ISDA recently published its Digital Asset Derivatives Definitions, which address how the existing ISDA product definitions may apply to digital asset derivatives. This represents the introduction of the first set of standards documentation for digital asset derivatives trading, consisting of both the definitions as well as digital asset confirmations. This is a welcome relief from the initial lack of standardized documents that market participants had used during the development of the crypto derivatives market.
Tax regime for crypto assets. Given that there are no specific UK tax rules for crypto assets, they are treated in the same way as any other asset. UK corporation tax is charged on trading profits – to determine whether a company is trading in cryptoassets it will be necessary to make a factual assessment based on the trademarks. From December 2022, the investment manager exemption in the UK has been extended to include transactions in crypto assets.
Crypto is here to stay! Although the global regulation of crypto-assets has not been determined, it was clear from our “Industry Insights” panel of renowned crypto professionals that crypto is here to stay.
