Britain’s Prime Minister Rishi Sunak speaks during a question and answer session at Teesside University on January 30, 2023.
Oli Scarf | Swimming pool Wpa | Getty Images
The UK has officially laid out plans to regulate the cryptocurrency industry, with the government seeking to curb some of the reckless business practices that have emerged over the past year and contributed to FTX’s demise.
In a much-awaited industry consultation launched on Tuesday, the government proposed a number of measures to bring the regulation of crypto-asset businesses in line with that of traditional financial firms.
Among the proposals unveiled on Tuesday was a ruling that would strengthen rules targeting financial intermediaries and custodians who store crypto on behalf of clients.
A big theme that emerged in 2022 was the rise of subprime lending between multiple crypto companies and a lack of due diligence on the counterparties involved in these transactions.
The UK’s proposals would crack down on such activities, seeking to establish a “robust global regime that strengthens rules around crypto-asset lending, while improving consumer protection and operational resilience for businesses”, according to a statement released on Tuesday evening. .
“We remain true to our commitment to growing the economy and enabling technological change and innovation – and that includes crypto-asset technology,” Andrew Griffith, Economic Secretary to the Treasury, said in a statement.
“But we also need to protect consumers who embrace this new technology, ensuring strong, transparent and fair standards.”
The collapse of FTX has added urgency to attempts by global regulators to rule the regulation-averse crypto space. The European Union and the United States have already made their own proposals to improve consumer protection in crypto.
In a Dec. 2 speech, Griffith said “recent events in the crypto market strengthen the case for timely, clear, and effective regulation.”
The implosion of FTX, which allegedly used customer money to make risky loans and transactions, set off a chain reaction of bankruptcies for digital asset lenders exposed to the crypto giant, including BlockFi and Genesis Trading by Digital Currency Group.
The proposals unveiled on Tuesday would also impose stricter transparency requirements on crypto exchanges to ensure they publish relevant disclosure documents and establish clear admission requirements for trading digital tokens.
Another measure would relax strict rules on crypto advertisements, allowing companies registered with the Financial Conduct Authority to issue their own promotions during the introduction of the broader crypto regime.
The regulatory decision comes as crypto businesses in the UK and beyond feel the chill of a deep downturn known as “crypto winter”.
Companies are seeing their valuations slashed by investors after the FTX explosion and a fall in crypto prices, while the industry has also been plagued by numerous rounds of layoffs. Last week, London-based crypto exchange Luno cut 35% of its workforce in a move impacting more than 330 positions.
Regulation takes time. It will probably take years before the measures are approved by Parliament. The Financial Services and Markets Bill, which would recognize crypto assets as regulated products, is still pending in Parliament. The law aims to make the country’s financial sector more competitive after Brexit.
Still, even the simple demonstration of being seen to act is important, according to some industry executives.
“Having a regulatory roadmap or regulatory direction of travel is going to be very helpful for the UK as a crypto hub,” said Julian Sawyer, CEO of the Standard Chartered-backed crypto custodial services firm. , Zodia Custody, to CNBC on Tuesday in an interview. .
Sawyer, who previously co-founded British fintech company Starling and led the international expansion of crypto exchange Gemini, said it was also important to ensure “general alignment between global markets in terms of ‘digital asset approach’.
He noted that the European Union has taken a head start with its law on crypto-asset markets, which is due to come into force in 2024.
Bitcoin, which has surged about 40% since the start of 2023, was trading flat on Wednesday at a price of $23,103.
Global crypto hub ambitions
Rishi Sunak, who took the reins as UK leader in October 2022, is seen by market participants as a crypto-friendly prime minister, having previously said he was “determined to ‘make the UK’ the jurisdiction of choice for crypto and blockchain technology”.
As London seeks to compete with post-Brexit EU financial hubs, crypto could be a way for it to improve its chances, industry insiders have previously said.
“There is an opportunity to bring clarity to the industry and allow it to play its part in delivering on its mandate to encourage businesses to invest, innovate and create jobs in the UK,” said Jordan Wain. , head of UK public policy at Chainalysis, told CNBC in November.
Sunak’s administration will consult on plans to introduce a new set of rules tailored to crypto companies, with a view to closing the consultation by April 30, after which it will formulate more detailed rules.
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