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Clearer UK crypto regulations by July?

Author: Syedur Rahman  16 April 2024
3 min read

Syed Rahman details government plans to devise a crypto regulation framework.

The UK Treasury is aiming to present a regulatory framework for crypto assets and stablecoins by July.

The UK’s economic secretary to the Treasury, Bim Afolami, has said that the move is part of the government’s attempt to improve the payments landscape and provide regulatory clarity for digital assets and blockchain in order to encourage innovation.

Mr Afolami made the announcement at the Innovate Finance Global Summit 2024 in London. He highlighted the importance of crypto regulations in helping the UK to remain globally competitive, adding that “the cornerstone of our position as a world leader in fintech is the delivery of our regulatory regime for crypto assets and stablecoins.”

He said that the British government’s approach to regulation involved aiming to find the right balance between allowing firms to innovate while protecting the consumers. The final proposals will, according to him, be produced by June or July.

Mr Afolami added: “Once it goes live, a whole host of crypto asset activities, including operating in exchange, taking custody of customer assets and other things, will come within the regulator perimeter for the first time.”

His speech came just days before it became possible for UK authorities to retrieve crypto assets directly from exchanges and custodian wallet providers. This is the result of amendments to the Economic Crime and Corporate Transparency Act 2023 which, from April 26 2024, expands the power of the National Crime Agency to confiscate crypto assets that the agency suspects are linked to illegal activity.

Scope

From Mr Afolami’s statement, the proposed regulatory framework looks set to be limited in its scope, deliberately dealing only with crypto assets and stablecoins. Whilst the statement acknowledges the need to balance innovation while protecting consumers, this does appear (from the limited information within the statement) to be focussed primarily on protecting the consumer.

There is some logic to this. Those who will come under these regulations, such as exchanges and wallet providers, will likely already be subject to the limited regulations currently in place. They will have the knowledge and resources to implement processes required of them by the regulatory framework in order to protect the consumer. One can speculate that a motivation behind implementing this change is to promote confidence in the crypto market among current and potential consumers.

At this stage, it is not clear whether the government’s plans for crypto will seek to mimic the current regulatory framework that surrounds traditional financial institutions. The most direct comparisons that need to be made in relation to UK crypto regulation are with the situations in the US and EU.

With the EU’s Markets in Crypto-Assets Regulation coming into force on 9 June 2023, as well as the US progressing two bipartisan bills through the US Congressional Committees at the tail-end of last year, there is now a risk of the UK being perceived as playing catch-up with its counterparts.

The UK government has made many a statement setting out its desire to be a world leader in the crypto sphere. But although there has been some progress in respect of implementing regulations, there is yet to be a clear governing framework.

Landscape

The wider political landscape may also affect whether we see these regulations implemented. With a general election set to take place later this year, there is a very real risk of these changes being lost in the ether. There is no guarantee that any party coming to power will share the current government’s apparent enthusiasm for bringing forth such legislation.

Over recent years, the crypto market has seen much fraudulent activity, which has had a catastrophic impact on its standing in the eyes of the general public. For the UK to truly become a ‘global hub’ for crypto, the general public and financial institutions need to feel safe with this sector and be able to place genuine confidence in the market. A consumer-focused set of regulations may well be the best way of achieving such confidence.

However, there must be a low bar for entry and the government would be wise to ensure that any new regulations put in place do not make the process of accessing crypto assets and stablecoins cumbersome and complicated.

There will, in due course, be a time and a place for implementing a regulatory framework that encompasses the wider crypto aspects, such as smart contracts and decentralised autonomous organisations. These are less widely-adopted aspects of crypto and there is the potential for the UK government to allow for genuine innovation at first and then promote itself as a safe haven for the crypto industry.

These things must be taken one step at a time. But the UK government would be wise to have these on their radar if it is serious about the UK being a world leader in this sector.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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