The UK government is pushing ahead with its plan to regulate the cryptocurrency industry, despite the recent collapse of several high-profile digital asset companies that hurt retail investors. According to the Financial Times, the UK Treasury said it would unveil a series of proposals to “regulate a broad suite of crypto asset activities, consistent with its approach to traditional finance” The aim of these reforms is to bring Britain’s crypto regulatory regime to a more neutral position, as previous rules were considered too lax by some. The government is also seeking to strengthen regulations surrounding companies that facilitate crypto transactions and safeguard customer assets.
The cryptocurrency sector has been in a state of acute turbulence over the past year, with the collapse of companies like Sam Bankman-Fried’s FTX and Celsius leaving individuals globally with billions of dollars in frozen funds. Additionally, the value of the 500 largest crypto tokens dropped by $1.7tn last year. The Treasury’s plan to regulate the industry is a response to this turbulence and to prevent similar events from happening in the future.
Despite the recent scandals in the crypto sector, the Treasury has downplayed its significance in the UK’s efforts to find growth, with one official stating that it is “relatively small.” Tulip Siddiq, Labour’s shadow City minister, criticized the government for not taking action, stating that the UK’s main opposition party has been calling for a crackdown on the “crypto wild-west for months.”
Currently, cryptocurrency activity is not regulated by the Financial Conduct Authority (FCA), but digital asset service providers operating in the UK must go through the watchdog’s anti-money-laundering review process. Around 85% of crypto groups that attempted to obtain FCA registration have failed, leading to criticism from the industry that the UK has stifled innovation. In response, the government plans to open a temporary exemption that would allow crypto companies registered on the anti-money-laundering list to promote their services to the public while a broader regulatory regime for crypto activity is introduced.
Last year, the government vowed to give the FCA oversight of most cryptocurrency marketing, in line with the standards applied to other financial promotions such as stocks, shares, and insurance products. The FCA does not currently oversee financial promotions, but it has been pushing for the financial promotions regime to cover crypto assets. The FCA stated that “cryptoasset businesses marketing to UK consumers, including firms based overseas, must start getting ready now for this regime.”