Britain’s finance ministry laid out its first set of rules to regulate cryptoassets on Wednesday.
The move follows the collapse of crypto exchange FTX last year, which wiped out billions of dollars in client funds.
‘Our view is that this reinforces the case for clear, effective, timely regulation and proactive engagement with industry,’ Financial Services Minister Andrew Griffith said in proposals put out to public consultation.
‘This includes a proposal to bring centralised cryptoasset exchanges into financial services regulation for the first time, as well as other core activities like custody and lending,’ Griffith added.
The new rules would cover crypto-related admission to a trading platform, making a public offer, executing payment transactions or remittances, arranging deals, operating a platform, custody, and mining transactions, or operating a node on blockchain.
The rules will cover crypto firms in Britain or those providing services to the UK. Firms would need a licence, along with minimum capital and liquidity requirements.
It would be up to the Financial Conduct Authority (FCA) to decide if a foreign operator needs a physical presence in the UK.
Crypto is currently unregulated globally, with firms only having to carry out checks to prevent money laundering, though this has not stopped ‘dark money’ flowing through the sector.
Binance, the biggest crypto exchange, on Wednesday said it welcomed the public consultation as it has ‘vocally supported the need for effective and appropriate regulation to help with the mainstream adoption of digital assets’.
Surveys show that 5-10% of adults in Britain now own cryptoassets, an increase of more than 100% over the past one-two years, with participation by institutional investors also growing, the ministry said.
The sector shrank dramatically last year, with the total global market capitalisation falling to below a trillion dollars from a peak of roughly $3 trillion.
Britain had already launched a consultation on regulating stablecoins, a subset of cryptoassets which are backed by currencies or other assets, in January 2021, but decided to broaden out to include all of the crypto sector.
There will be a three-month public consultation on the new plans, followed by proposals for detailed rules from the FCA.
Britain plans to ‘recognise’ similar rules in other countries so that firms authorised elsewhere could serve customers in the UK without a physical presence.
The EU is finalising its own set of crypto regulations, the Markets in Crypto Assets Regulation (MiCA).
Firms already authorised by the FCA would be temporarily allowed to issue their own promotions, while the new regulatory regime is being introduced, the ministry said.
‘Digital assets, specifically stablecoins, and blockchain infrastructure have very beneficial use cases by making secure payment services accessible to all. To ensure the UK becomes the global crypto industry hub, the regulations need to balance protectionist measures with practical application,’ said Will Marwick, CEO at IFX Payments.
The consultation was welcomed by crypto firms while highlighting the need for a collaborative approach.
‘Overall, it’s very positive to see that crypto is now formally a part of the Prime Minister’s plan for economic growth. We’re confident crypto has the potential to disrupt financial services, as well as improve lives, for generations to come,’ said Blair Halliday, UK MD of crypto exchange Kraken.
‘But if the UK wants to fulfil its ambition of becoming a global crypto hub, it’s crucial that the proposed ‘adaption’ of existing regulation is right-fitted to the asset-class. Most importantly, the framework must cover firms that have no onshore presence but which continue to offer services to UK customers,’
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