UK Releases Proposed Crypto Regulatory Regime.

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In perhaps the clearest sign yet that the UK government is taking the challenges and opportunities of the crypto industry seriously, HM Treasury has released a new consultation paper, “Future Financial Services Regulatory for Cryptoassets “.

In the foreword, he says: “It is the Government’s strong ambition that the UK is home to the most open, best regulated and technologically advanced capital markets in the world. Achieving this ambition requires taking proactive steps to exploit the opportunities of new financial technologies. We believe crypto technologies can have a profound impact on financial services.

Crypto conundrum: to regulate or not to regulate.

Over the past few years, the crypto industry has become increasingly complex as the ever-changing ecosystem continues to generate a myriad of opportunities and associated risks.

Although there are currently no regulations related to crypto in the UK, the FCA and the Bank of England have issued usage guidelines and warnings about the lack of regulatory and monetary protection.

In a post-Brexit world, the crypto conundrum has been further compounded by the EU’s decision to create MiCA, one of the world’s first crypto regulatory frameworks. Although MiCA does not apply to UK crypto service providers (or any non-EU providers), if UK providers plan to target EU investors or offer their services in the EU, they will need to then obtain MiCA authorization and follow the TFR requirements, to ensure they comply with UK and EU regulations.

FTX and the industry-wide alarm call.

The collapse of FTX at the end of 2022 sent shockwaves through the industry, affecting global crypto asset markets and investors, and forcing regulators to re-examine its crypto asset regulatory timeline.

HM Treasury’s decision to publish a consultation paper covering a potential regulatory regime for crypto-assets, finally addresses the elephant in the room. From a timing perspective, the consultation could not have been opened at a more opportune time. The crypto industry has suffered many high-profile casualties in recent months, which makes the case for crypto regulation all the more palatable.

Jason Tucker-Feltham, head of crypto sales at IDnow

The 77-page document contains information on the current crypto-asset regulatory landscape, definitions of different types of crypto-assets, and the geographic scope of crypto-asset activities.

In addition to more general guidance on investment advice and portfolio management in crypto-assets, the new consultation document sets out a proposed policy approach to bringing crypto-asset business into the UK regulatory perimeter. For example, this suggests that most initial coin offerings would be considered securities offerings, which would mean that the equivalent of customer asset segregation requirements would be applied to crypto businesses. As such, proposed future crypto regulatory requirements would fall under the UK Financial Services and Markets Act 2000.

“Until now, the direction of UK crypto-asset regulation has been anything but clear. A balanced and well-thought-out regulatory framework will likely lay the groundwork for the UK to become a major global crypto hub.

The latest developments are music to the ears of mainstream financial institutions, as clear rules for conducting crypto business inside and outside the UK provide a level of certainty that has yet to be demonstrated. by the court.

Jason Tucker-Feltham, head of crypto sales at IDnow

As a consultation document, the “Future Financial Services Regulatory Regime for Crypto-Assets” allows people inside and outside Parliament to provide feedback on the policies and legislative proposals it contains. Questions for respondents include the following:

Do you agree with the assessment of the challenges of applying a market abuse regime to crypto assets? What steps can be taken to encourage the development of RegTech to prevent, detect and disrupt market abuse? Do you agree with the proposal to require all regulated companies undertaking crypto-asset activities to be required to handle inside information? Next steps on the UK journey to crypto regulation.

The UK Government will now undertake a stakeholder engagement program to gather opinions and feedback to establish a clear regulatory framework that supports innovation and protects consumers. How similar this will be to the EU regulatory framework, MiCA, remains to be seen.

Put the KYC in crypto.

KYC processes are integral to ensuring that crypto exchanges can protect themselves and their customers against fraud and money laundering, even in an evolving crypto regulatory landscape. Having these controls in place will protect investors from financial loss and add stability to a notoriously volatile market.

IDnow’s highly configurable identity verification solutions work across multiple regulations, industries, and use cases, including crypto. Whether automated or expert-assisted, its online identity verification methods have been optimized to meet the highest security standards and regulatory requirements without compromising customer conversion or customer experience.

For more insight into the crypto world, including 2023 trends, check out our Fintech Spotlight interview with Jason Tucker-Feltham.

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Jody HoutonContent Manager at IDnowConnect with Jody on LinkedIn

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