Britain announced on Monday that it will implement its first set rules to regulate crypto, requiring participants in the market to be authorised prior to offering services to consumers.
Cryptoassets are still a small part of the global financial system. However, the price of Bitcoin has recovered since the collapse of FTX crypto exchange raised concerns over the links with mainstream finance and the harms caused to consumers.
In June, the European Union began implementing the first comprehensive set of rules for the cryptoasset market in the world. This is attracting crypto firms that are looking for regulatory certainty in order to establish a base in the EU.
The British finance ministry announced that it will proceed as suggested in a public consultation held in February, which requires firms engaging cryptoassets to be authorized by the Financial Conduct Authority. However, it did not give a start date.
The rules that were developed in response to the FTX crash focus on cryptoassets such as bitcoin and the underlying blockchain technology or distributed ledger technology which underpins this sector and is seen as promising, for example, as a means of settlement securities.
The ministry stated that “the government’s view is that all firms who deal directly with UK consumers at retail should be required by law to be authorized, regardless of their location.”
The rules apply to the following: offering a cryptoasset; operating a trading platform; swapping cryptoassets against currencies like sterling; arranging investment and lending in cryptocurrencyassets, and safekeeping and custody.
The Ministry said that the new rules would be brought into market law and not as a separate regime.
Jonathan Cavill, an attorney at Pinsent Masons, said that it is unlikely that crypto regulations will be easily incorporated into the existing regulatory structure. The UK risks being left behind as the crypto market continues to grow at a rapid pace if it does not attract businesses.
The Ministry said Britain is committed to creating an environment that allows firms to innovate while maintaining financial stability, so people can use the new technologies reliably and safely.
The government said that it would speed up the implementation of all the rules to provide clarity to the sector, and will present secondary legislation to the parliament next year.
Sophia Le Vesconte is a fintech lawyer at Linklaters.
Currently, the only requirement for crypto companies is to protect against money laundering. However, Britain has introduced new rules on marketing cryptocurrencyassets this month.
The UK announcement comes as the crypto industry is regaining its fortunes after losing much of its value over the last year due to the FTX scandal and other scandals.
Bitcoin reached its highest level in almost a year-and-a-half last week, at $38,872. This was due to speculations that a bitcoin exchange traded fund would be launched in the United States.
The ministry also said that it would regulate stablecoins – a digital currency backed up by government-issued currency for retail payments – and will introduce legislation in 2024 giving the FCA power to supervise them.
The ministry said that it would also set up regulations to deal with the failure of major stablecoins.