The United Kingdom has announced plans to establish regulations for the cryptocurrency industry through official legislation by next year. The government’s decision followed its response to a previously issued consultation paper that provided guidance on the sector’s regulation.
The regulations aim to encourage expansion and creativity in the industry while also minimizing financial stability concerns and ensuring consumer protection.
U.K. Financial Services Minister Andrew Griffith said he anticipated the new ruling as he presented the ultimate recommendations for regulating crypto assets in the U.K.
“I look forward to our continued work with the sector in making our vision a reality for the U.K. as a global hub for crypto asset technology,” said Griffith in an official statement.
Various stakeholders, including cryptocurrency experts, fintech firms, industry associations, traditional financial institutions, members of the public, academic experts, and legal and consulting firms, contributed their insights to this regulatory framework.
The government’s recommendations encompass stricter regulations for crypto exchanges, custodial services responsible for safeguarding clients’ crypto assets, and companies involved in crypto lending.
The U.K. also suggests imposing stricter measures to combat market manipulation and enhancing transparency in the issuance and disclosure of crypto assets. Presently, the specific details of U.K. crypto-related legislation still need to be clarified.
In contrast, the European Union has already established a well-defined framework for digital assets through its MiCA (Markets in Crypto-Assets) regulation, which includes a licensing process for crypto firms.
Prime Minister Rishi Sunak has promoted plans to turn the U.K. into a global crypto hub. However, his plans meet criticisms from several parties — including the Financial Conduct Authority, as the regulator aims to strengthen consumer protections.
Over the past year, the call for stricter regulations has increased, particularly after the prominent exchange FTX collapsed, resulting in substantial financial losses for numerous investors.
The U.K. has progressed more in this regulatory process than many leading tech nations. So far in the U.S., several bills are progressing through Congress, but there have been few updates on them.
Criticisms against the proposed regulations
According to the proposals, stablecoins will be subject to the same regulations as traditional payment service providers, governed by the Payment Services Regulations.
Tether’s USDT token, the largest stablecoin globally with a current market value of $85 billion, will fall under these regulations.
For stablecoins issued in the U.K., their creation and safekeeping will be brought within the regulatory scope of the Financial Services and Markets Act.
Some experts in financial regulation have expressed reservations about the feasibility of these proposals. Jonathan Cavill, a partner at the law firm Pinsent Masons, said that it was unlikely for crypto regulation to fit into the existing regulatory framework seamlessly.
He emphasized that a considerable investment of time, money, and careful consideration is required to accomplish this swiftly.
Cavill also pointed out that these rules are likely to bring about a transformation in the structure and development of the industry. He noted that achieving and maintaining compliance with regulations is a costly and time-consuming process.
The U.K. government says the crypto industry should adhere to the same standards expected of comparable financial service activities, in line with the risks it presents.
Authorities urge international investors and cryptocurrency firms active in the U.K. to adjust to the fresh regulatory structure, which is expected to foster more accountable and safe investment.