Incoming crypto regulation has flown under the radar
The UK has finally taken steps to become a world-leading crypto hub. But what’s next for cryptocurrency regulation, asks Luno’s global head of public policy Thomas Tudehope.
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While most people have been focused on the Westminster soap opera, under the radar, a seriously important step in cryptocurrency regulation has taken shape. Andrew Griffith MP and HM Treasury tabled amendments to Financial Services and Markets Act which will allow the UK to introduce a fully comprehensive regulatory regime for crypto.
This is a big moment for the UK crypto sector, and it’s something some crypto firms operating over here have been advocating. Those who are pro-regulation believe that this more comprehensive approach will protect consumers and give businesses certainty, allowing them to attract investment and create more jobs.
Despite many seeing the new prime minister as more cautious than his predecessor, it may come as a surprise to some that Rishi Sunak is known for his pro-cryptocurrency views. The former Chancellor of the Exchequer said in April 2022 that “It is my ambition to make the UK a global hub for crypto-asset technology.”
Crypto is an increasingly important sector, attracting millions of pounds in investment and creating tens of thousands of jobs – while 10 per cent of UK adults hold or have held a crypto asset according to HMRC research. In recent weeks, the UK was named the largest crypto economy in Europe, accounting for $233 billion in raw transaction value from July 2021 to June 2022.
While the country’s new leader faces a host of challenges during his first 100 days in office, crypto remains a strategic priority for policymakers and it has been a very significant step towards effective regulation in the UK.
The government amendments to the Financial Services and Markets Bill – passed in the Commons on 25 October before going to the House of Lords – will allow for the introduction of a fully comprehensive regulatory regime for crypto.
City Minister Andrew Griffith introduced the proposal, which would allow current laws regarding payment-focused instruments to be extended to stable coins, such as Bitcoin.
His actions, which come on the heels of Rishi Sunak’s appointment, have been welcomed by the industry as it signals a move away from the piecemeal approach to regulation.
Although this is the actual start of the process, a public consultation note was to be published next year. However, Griffith has said that the consultation on the regulatory regime will now take place before Parliament is suspended for Christmas.
As a result, the UK is now in a position to seize the opportunities presented by crypto and capture the progress already made in this area in the EU through MiCA.
These changes will give policymakers the ability to introduce a regulatory regime for crypto if they wish under the designated activity regime. It is not the regulations themselves.
In the coming months, we look forward to working closely with policymakers as they begin to shape the specific rules and regulations to best understand how crypto’s underlying technology can be regulated while preserving innovation.
There are many international precedents that officials can look to as they begin this process. Singapore, where Luno has a full crypto license, introduced its regime in 2019, while the EU’s MiCA regulation is in the process of being adopted by Brussels.
The best regimes put consumer protection at their core. It is also important that all types of “crypto asset service provider” (CASP) are within the scope, rather than focusing on just one part of the sector.
Innovation and these tough regulatory regimes are not mutually exclusive. Consumer protection is a prerequisite for trust, which is necessary for broad adoption, which in turn is a prerequisite for commercial success and innovation.
Apart from strong bank-like consumer protection requirements, we would encourage policymakers to include a full suite of conduct and governance rules to ensure CASPs are well managed.
Standards must also be set for outsourcing, cyber security and data protection. With the controls in place to prevent the use of cryptocurrency for illicit means, crypto asset service providers can live up to consistent standards.
With the UK firmly entrenched as a world-leading fintech hub and crypto adoption continuing to rise, the time is right for the government to take action on crypto regulation. Consumers must be protected and businesses demand security.
These changes are a big step in the right direction. A comprehensive regulatory framework will unleash innovation in the sector, help create thousands more highly skilled jobs and attract significant investment to the UK.
The views and opinions expressed are not necessarily AltFi’s.
