UK Moves to Regulate Crypto for Better Consumer Protection

Great Britain is preparing the ground for cryptocurrency regulation in the country in the future, the UK's government announced on Wednesday. Public consultation has been launched as the first step to prepare a draft law on regulating digital assets.

UK Starts Crypto Regulation Works

According to the official press release published on the government website, the UK wants to protect its consumers better and allow the crypto industry to grow from within the regulated ecosystem. The new crypto rules will aim to exclude the risk of bad actors entering the market and reduce the risk of money laundering activities using a decentralized and anonymous crypto niche.

"We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. But, we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards," Andrew Griffith, the Economic Secretary to the Treasury, commented on the proposed regulations.

The UK government pointed out that cryptocurrencies, as an emerging sector still experience heightened volatility. In addition, the recent high-profile collapse of many companies following the bankruptcy of the FTX exchange has exposed the 'structural vulnerability' of some business models prevalent in the industry.

"Our robust approach to regulation mitigates the most significant risks while harnessing the advantages of crypto technologies. This enables a new and exciting sector to safely flourish and grow, boosting jobs and investment," the press release added.

In April 2022, John Glen MP, then Economic Secretary, set out plans to regulate stablecoins and to transfer Great Britain into one of the global crypto hubs. From 2022, the Financial Conduct Authority (FCA) has the right to supervise cryptocurrency businesses in relation to money laundering and terrorist financing risks. As a result, companies wishing to operate in the local market must obtain authorization from the regulator.

However, the industry is not regulated from an individual customer's point of view. In case of lost funds, due to the exchange collapse or the loss of a private key, the investor cannot rely on the Financial Services Compensation Scheme. FCA's announcement in November following the collapse of FTX was a prime example when the institution reiterated that it is not responsible for regulating crypto, and investors are most likely left to face this problem on their own.

Watch the recent FMLS22 panel on the regulation roundup for 2023.

When Will the UK Start Crypto Market Regulations?

Although the Treasury has not set a date for the final cryptocurrency market regulation or publishing a draft bill, the current public consultation that was launched on 1 February will run until 30 April. After that, the government will review the feedback and begin preparing a response.

Once the draft regulations are in place, the FCA will hold an individual consultation with the industry to discuss how the cryptocurrency sector will operate once the new rules are implemented.

The UK's proposed rules are intended to make cryptocurrency systems responsible for setting out detailed requirements for the content of disclosure and admission documents, ensuring robust and fair standards for all trading platforms. On top of that, the regulations apply to custodians and financial intermediaries responsible for holding assets belonging to clients.

"These steps will help to deliver a robust world-first regime strengthening rules around the lending of cryptoassets, whilst enhancing consumer protection and the operational resilience of firms," the statement added.

Time Limited Exemption for Crypto Firms

Moreover, the UK government has announced that, following concerns about the small number of crypto firms that the FCA authorizes to issue their own promotions, the Treasury is introducing a time-limited exemption.

It means that digital asset firms authorized by the FCA for anti-money laundering purposes will be able to issue their promotional materials before the new regulatory regime is presented.

The European Union is working on its own cryptocurrency regulations under the Markets in Crypto-Assets regulation (MiCA) proposal. MiCA seeks to regulate issuers of stablecoins and other unbacked crypto-assets such as Bitcoin.