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The United Kingdom has unveiled sweeping new regulations for the cryptocurrency industry. Scott Chipolina reports in the Financial Times:
The UK has set out a sweeping new regulatory regime for the cryptocurrency industry that aims to bring the rules governing the issuance, trading and lending of crypto tokens closely into line with those for traditional financial assets such as stocks and bonds.
The proposals to “robustly” regulate the sector, which are subject to a consultation, are the clearest sign yet that the government is determined to transform the UK into a hub for the crypto industry, despite a year of turmoil that saw the value of many popular crypto assets plummet and the collapse of leading crypto exchange FTX. The government’s embrace of crypto comes amid concerns that Brexit threatens London’s dominance as Europe’s leading financial centre.
“We believe that crypto technologies can have a profound impact across financial services,” said Andrew Griffith, economic secretary to the Treasury. “By capitalising on the potential benefits offered by crypto, we can strengthen our position as a world leader in fintech, unlock growth and boost innovation.”
The collapse of FTX in November fuelled calls for tougher regulation of the industry, not least because its failure highlighted the risks presented by exchanges that combine several regulated activities, including facilitating trading, market making, clearing and the custody of customer assets. In traditional finance, these roles are typically doled out to a series of companies.
“It is evident that the shadow cast by high-profile failures through 2022 has influenced the extent and pace of implementation of these measures,” said Albert Weatherill, financial services partner at law firm Norton Rose Fulbright.
Such businesses would be expected to comply not only with the rules governing traditional trading venues but also to take additional steps to safeguard customer funds.
The Treasury also promised a “world-first regime for crypto lending” as it aims to rein in a sector that was at the centre of last year’s crypto meltdown. According to a report published this week by a court-appointed examiner, the now-bankrupt US-based lender Celsius Network misused investor and customer funds for years before its collapse, raising questions over whether watchdogs should have intervened sooner.
Under the proposed rules, regulated crypto lenders would be expected to adequately warn consumers of risks and ringfence retail funds in case of insolvency. A regime for lending activity, the Treasury said, should also consider contingency plans for the failure of a lending platform’s largest market counterparties.
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