Following a consultation, the Treasury issued a report today (30 October) detailing the responses and updated changes to a proposed wide-ranging set of regulation.
The regulations, which have a focus on stablecoins and the financial promotion of cryptoassets, will be broken into two parts, with secondary legislation presented to parliament next year.
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Firms undertaking cryptoasset activities will now have to be authorised by the Financial Conduct Authority, which will include requirements for crypto exchanges to create detailed requirements for admission standards and mandate disclosures when listing new assets.
“The government’s position is that firms dealing directly with UK retail consumers should be required to be authorised irrespective of where they are located,” the report said.
The Treasury also declined to regulate decentralised finance (DeFi) in this phase of regulation, saying it would be “premature and ineffective”.
Albert Weatherill, financial services regulatory partner at Norton Rose Fulbright, noted there were still “many unknowns” in the regulation, such as when the regulations will come into force and how applicants are able to get authorised to partake in crypto-related activities.
“The key challenge for the regulators is to provide this certainty as soon as possible, such that the industry can begin to adapt to its new regulatory reality,” he added.
The regulation is part of a broader goal of prime minister Rishi Sunak to make the UK a global crypto hub, having previously advocated for launching a non-fungible token (NFT) made by the royal mint.
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“The government’s ambition to make the UK a global hub for cryptoasset technologies remains steadfast,” said city minister Andrew Griffith.
“To realise this ambition, we must make the UK a place where cryptoasset firms have the clarity needed to invest and innovate, and where customers have the protections necessary for confidently using these technologies.”
The consultation, which ran from February to April, found that 79% of feedback received was mostly supportive, with the regulation of NFTs being the most prominent theme in responses.
The report stated that unique NFTs that act as collectibles “should not be subject to financial services regulation.” However, NFTs used as an exchange token may fall within future financial services rules.
Meanwhile, regulation of asset-backed stablecoins will also come into force, with other areas such as algorithmic stablecoins following in the later legislation.
In May, the Treasury Committee pushed back against the proposed regulations, stating that it could give crypto “unwarranted legitimacy”.
“Given retail trading in unbacked crypto more closely resembles gambling than a financial service, the MPs call on the government to regulate it as such,” the committee said in a report.
