UK Unveils Phased Crypto Regulations, Aiming for Prominent Crypto-Asset Hub Status

The U.K. government has unveiled its final rules for the crypto ecosystem, outlining a phased introduction of regulations. The government plans to implement legislation for fiat-backed stablecoins early next year.

This move aligns with the government's vision to establish the U.K. as a prominent crypto-asset hub, Coindesk observed.

Industry's Positive Reception to Regulator's Actions

These regulatory developments will likely be embraced by the crypto industry, which has previously criticized the government for its delayed actions. By bringing relevant activities within the traditional financial service regulation framework, the industry will benefit from increased clarity and oversight.

The Treasury initiated a crypto consultation in February, with the consultation period ending in April. Subsequently, Parliament passed the Financial Services and Markets Act 2023 in June, enabling the categorization of crypto as a regulated activity. These steps demonstrate the government's commitment to integrating crypto within the established financial sector.

Modified Approaches for Crypto Assets

According to an update published on Monday, the government aims to gradually include other crypto areas, such as algorithmic stablecoins, under the purview of conventional financial regulation. As a result, activities like lending and trading will fall under the supervision of the Financial Conduct Authority (FCA).

Treasury Minister Andrew Griffith has clarified some of the proposals, indicating that cryptoassets already considered traditional financial instruments or non-fungible tokens (NFTs) will not fall under the purview of financial services regulation, CNBC reported. However, NFTs used as an exchange token may be subject to future financial services rules.

The government plans to establish equivalence measures for overseas firms. Under these measures, an overseas-regulated trading venue can seek authorization for its U.K. branch. The Financial Conduct Authority (FCA) will play a crucial role in determining the specifics of this authorization process.

The U.K. government confirmed that it does not intend to ban decentralized finance (DeFi) and considers it premature to regulate this particular aspect of the industry. This recognition highlights the government's willingness to adopt a measured approach to new and innovative financial technologies.

Stablecoins backed by fiat currency will face regulation under existing 2001 rules designed for financial services. The government emphasizes the importance of effectively regulating the issuance and custody of these stablecoins to safeguard financial stability and consumer protection.

Photo: Sajad Nori/Unsplash