The UK has outlined ‘ambitious plans to robustly regulate crypto activities’. HM Treasury has also opened a consultation which will stay open until 30 April, asking for industry views on its draft proposals.
HM Treasury has made a call for evidence for views on a future regime for DeFi. Last year, then Chancellor Rishi Sunak called for the UK to be a global crypto hub. The UK government estimates that 10% of investors already hold crypto. This is making the coins an already significant part of the retail investment system.
The UK is taking a “second mover advantage” with new crypto plans and “following in the footsteps” of the EU, according to Mark Foster, EU Policy Analyst for the Crypto Council for Innovation. “It’s following in the footsteps of the EU and taking a second mover advantage – learning the lessons from the first movers to put in place bespoke, domestic rules,” he said.
The proposal requires crypto exchanges and trading venues to have detailed reporting and disclosure rules. Rules are also established for financial intermediaries and custodians in order to improve transparency and investor protection.
World-first regime for crypto-lending?
The proposal also trumpets a claim to be creating a world-first regime for crypto-lending. In fact, it would be the first regime for crypto lending among G20 countries – given a specific regime on lending has not been created elsewhere thus far.
Importantly, the plans cover a broad range of crypto activities and attempt to provide clarity to the market. Regulatory clarity is something the crypto industry has been calling on for years to grow, just like other sectors.
“The approach appears designed to ensure a similarly robust regime for digital assets as traditional finance, along the ‘same risk, same rules’ principle,” said Foster. “The UK also highlights its desire to have robust but proportionate rules, to create a regime which capitalizes on the potential benefits offered by crypto. It will be interesting to see how this regime develops and its interplay with on-going work by international standard setters such as the FSB and IOSCO.”
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Despite this announcement, progress has been slow. The Treasury may have had its hands tied trying to develop a plan for the UK’s economic recovery, but we have to create a system of corporate governance in digital assets and implement stronger regulation and frameworks to avoid situations where companies can operate unethically without oversight.
“The integration of blockchain and distributed ledger technology into UK financial services will drive improved efficiency and innovation in the fintech space, with the real potential to create whole new economies,” explained Jai Bifulco, Chief Commercial Officer at Kinesis Money. “If we can create this environment that allows people and businesses to leverage the benefits of this technology whilst minimising the risks, it will really help to reboot our faltering economy.”
Bifulco says the whole crypto community in the UK is now waiting with anticipation because it’s imperative they get this right and take on the industry’s feedback. “For example, we know the Treasury is working on specific regulations on stablecoins following the uncertainty surrounding Tether,” he said.
Stablecoins like Tether allow anyone to own a particular physical asset in a digital form, which is a powerful tool. They are increasingly favoured as they have all the upsides of cryptocurrencies without the inherent volatility that has raised concerns over investor protections.
However, for stablecoins to add value, we need to have some measures in place that ensure the asset is backed 1:1 by fiat or a commodity like precious metals and isn’t being leveraged elsewhere, bringing further legitimacy and accountability to operations.
“On that basis, any proposals on stablecoins must include stringent auditing, better regulation and more transparency to ensure all the assets are tracked responsibly and are fully redeemable on request,” Bifulco added.
