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The average value of crypto held has increased from £1,595 to £1,842, while awareness of crypto has increased from 91% to 93%. The FCA’s Proof of space survey shows that family and friends were the most common source of information for new crypto buyers. The FCA’s research also shows an increase in crypto ownership among British investors.
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Last year, Rishi Sunak, then Chancellor, said he wanted to make the UK “a global hub for crypto-asset technology”, external. Part of the original appeal of cryptocurrency was its independence of traditional financial networks. There is also the potential for a hardware wallet containing cryptoasset information being https://www.xcritical.com/ lost, stolen or attacked.
Positive sentiment returns but underlying risks persist
The bill, which was introduced in July 2022, gives regulators more power over the financial system, including crypto. While the bill was debated in Parliament, amendments were added to treat all crypto as a regulated activity and to supervise crypto promotions. Crypto assets have cryptocurrency regulations uk been around for more than a decade, but it’s only now that efforts to regulate them have moved to the top of the policy agenda. This is partly because it’s only in the past few years that crypto assets have moved from being niche products in search of a purpose to having a more mainstream presence as speculative investments, hedges against weak currencies, and potential payment instruments. The UK’s financial regulator will allow some bitcoin-linked securities to be listed on the stock market, in a softening of its tough stance on digital assets as investors around the world snap up funds investing directly in cryptocurrencies. These publications follow on from the speech provided by Tulip Siddiq MP, Economic Secretary to the Treasury, outlining the Government’s approach to tokenisation and regulation.
Call to get crypto regulated as FCA reveals 7M Britons now own some
The “same risk, same regulatory outcome” principle underpins the approach to cryptoassets, with the regime expecting cryptoassets activities to meet the same regulatory standards expected of similar traditional FS activities. The proposed activity-based framework covers a broad suite of crypto activities, and references new powers that HMT is set to receive via the Financial Services and Markets Bill (FSMB). The publication presents a tailored approach for fiat-backed stablecoins, and a separate comprehensive, activity-based regime to bring key crypto players within the UK regulatory perimeter. HMT’s roadmap does not amount to a detailed regulatory framework – that will only come after the Financial Conduct Authority (FCA) consults on detailed firm rules. There are no specific time commitments set out in this publication, but we expect to see some clarity in the regulatory timeline grid expected to be published early this year.
These include predominantly cyber and operational risks, which have already come to the fore through several high-profile losses from hacking or accidental loss of control, access, or records. This blog explores the UK’s overall regulatory approach to cryptoassets, key features of its activity-based framework, and some of the initial implications for the crypto industry. However, this roadmap marks an important step in delivering the government’s vision for a competitive UK cryptoassets market, and provides much needed clarity around the broader approach to regulating crypto markets. The FCA currently has oversight to check that cryptoasset firms have effective anti-money laundering (AML) and terrorist financing procedures in place, but generally cryptoassets themselves are not regulated. Security tokens (tokens with specific characteristics that provide rights and obligations akin to specified investments, like a share or a debt instrument) are the only FCA-regulated cryptoasset.
Parliament passed the Financial Services and Markets Act 2023 in June, enabling crypto to be treated like a regulated activity. “With increased insight and data due to a longer period of trading history, the FCA believes exchanges and professional investors should now be able to better establish whether crypto-ETNs meet their risk appetite,” the regulator said in a statement. “Bitcoin is by far the most well-known crypto asset, and for it to be very difficult for the UK public to be able to buy it, how can we claim to be a crypto hub if we only offer risky ways of buying this asset? ” said Tim Lowe, strategic adviser at London-based institutional staking firm Attestant. Issuers can apply to list notes that are linked to the bitcoin and ethereum coins on the London Stock Exchange from April. ETNs are debt securities that track an underlying asset but are traded and settled through a central market entity like a stock exchange and securities depository.
- The plans are in line with an April 2022 policy set out by Rishi Sunak, then finance minister and now prime minister, to make the U.K.
- But it was the announcement of Libra, touted as a “global stablecoin,” that grabbed the world’s attention and added a greater impetus to these efforts.
- The FCA is also already working with industry and the Treasury to help shape an industry-led market-abuse information sharing platform.
- Finally, users can trade their cryptoassets using decentralised exchanges, which facilitate cryptoasset exchange through smart contracts.
- To facilitate a smooth transition, the FCA will introduce a proportionate process, and will try to avoid asking for the same information twice.
Through third-party intermediaries who safeguard the cryptoassets on behalf of the consumer (akin to banks). These platforms have made the cryptoasset technology more accessible to everyday users. In the speech, which was delivered at the Tokenisation Summit on 21 November 2024, Ms. Siddiq outlined the Government’s initiatives in the digital asset ecosystem, such as the Digital Securities Sandbox and the broader cryptoasset strategy. These initiatives include exploring UK sovereign debt issuance using DLT and advancing financial market infrastructure sandboxes. The Treasury also said on Tuesday that it would seek to strengthen rules surrounding companies that facilitate crypto transactions and safeguard customer assets. The Treasury, the government’s finance arm, published a crypto consultation in February and the consultation closed in April.
In the UK, the NCA’s National Assessment Centre estimates that likely over £1 billion of illicit cash is transferred overseas using cryptoassets. They also estimate that hundreds of millions of pounds are likely laundered via over-the-counter crypto brokers and professional money launderers have widely adopted cryptoassets to facilitate crime. Finally, users can trade their cryptoassets using decentralised exchanges, which facilitate cryptoasset exchange through smart contracts. There are no AML/KYC requirements to use decentralised exchanges, making them vulnerable to abuse by criminals.
As part of this approach, the consultation will seek views on improving market integrity and consumer protection by setting out a proposed crypto market abuse regime. In the early years, the major concern was preserving financial integrity by minimizing the use of crypto assets to facilitate money laundering and other illegal transactions. The Financial Action Task Force moved quickly to provide a global framework for all virtual asset service providers. The International Organization of Securities Commissions (IOSCO) also issued regulatory guidance on crypto exchanges.
Establishing and staffing a UK presence – with sufficient risk and compliance expertise – will likely require significant organisational change for some firms. Once the new regime applies, crypto firms registered with the FCA under the UK Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) would need to seek authorisation under the new FSMA-based regime. To facilitate a smooth transition, the FCA will introduce a proportionate process, and will try to avoid asking for the same information twice. The table below analyses the activity-based approach proposed in the first two phases of regulation, including elements that are excluded from the perimeter for now. Since the collapse in November 2022 of global cryptocurrency exchange FTX with a reported $9 billion shortfall, the cryptocurrency market has recently undergone a much-needed resurgence in confidence.
Cryptoassets are defined broadly in the FSMB [1], aimed at capturing all current types of cryptoassets. In the UK, we have the Faster Payments Scheme, so there is not as much of an advantage in terms of speed or cost to using cryptoassets to transfer value. However, in developing countries and even jurisdictions like the U.S where wire transfers can take several days and cost much more, cryptoasset transfers may be more efficient and therefore more appealing. Cryptoassets were designed to give individuals greater control over their finances, serving as a decentralised form of electronic currency that enabled peer-to-peer global transactions, without the input of a centralised authority such as a country or a bank. It is a highly volatile asset class, and investors should be prepared to lose all the money they put in, regardless of whether or not they fall victim to a scam. The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases.
As HMT sets out, these are a group of commonly used terms and will not necessarily be aligned to regulatory definitions. Separately, the UK Government confirmed its next steps regarding crypto promotions. Crypto firms registered with the FCA under the MLRs will welcome the temporary exemption that will enable them to communicate their own promotions while the broader future crypto regime is being developed, rather than needing to have them approved by an authorised firm.
It is important to note, though, that there are thousands of cryptocurrencies that aren’t necessarily correlated with one another’s price movements. Proxies like these tend to be correlated with Bitcoin as the most well-known cryptocurrency (MARA and MicroStrategy especially so given their businesses are directly linked to Bitcoin in particular). It is estimated that English law governs £250 billion of global mergers and acquisitions, and 40 per cent of global corporate arbitrations, so keeping the law up to date is vital to ensuring that the UK remains the law of choice internationally. After recent scandals in the crypto sector, the Treasury has downplayed its significance in Britain’s efforts to find growth.
This is currently under consideration, and for the FCA to determine, at the point at which firms apply for authorisation. However, HMT is clear that crypto trading venue operators will likely require a subsidiary in the UK. International trading venues that serve UK customers should start preparing for this.
The volume of work ahead indicates that we are unlikely to see all the details of the UK’s approach in 2023. With a consultation response and a raft of secondary legislation and FCA consultations to follow, our estimate is that comprehensive regulatory clarity will take up to three years. Even amongst the activities targeted in phase 2, we may see a degree of prioritisation.
