The United Kingdom is set to create a broad regulatory framework detailing how cryptocurrency businesses can set up shop and operate in the country.
The U.K. Treasury is due to unveil a package for regulating crypto in the coming weeks. Many in the crypto community welcome such a plan, hoping the U.K. will take a similar approach to what the U.S. and European Union has done.
We first reported the U.K.’s plan to regulate crypto last week.
“Of course reducing financial risk for crypto holders is important, but we hope it does not become over-regulated,” Humayun Sheikh, CEO of artificial intelligence platform Fetch.ai, wrote in an email to CoinDesk. “We look forward to how the regulations plan to address the current opportunities and challenges.”
The U.K. is the latest jurisdiction to speed up efforts to regulate the industry in a comprehensive way in the face of the rising adoption of cryptocurrencies.
The country is a leading decentralized finance (DeFi) spot in Europe in terms of adoption. Crypto investors poured $170 billion into DeFi platforms between June 2020 and July 2021, the most in Europe during that period, according to a Chainalysis report.
What the U.K. has done so far:
The U.K. doesn’t consider crypto as a currency or commodity, and has been regulating the crypto industry in different ways. The FCA became the U.K.’s regulator for anti-money laundering and countering financing of terrorism (AML/CFT) in 2020, and more than 100 firms have registered to be supervised by the regulator since then. Firms waiting for approval by the FCA were put on its “Temporary Registration Regime” (TRR), which enabled them to do business until April 1. A small number of firms will be allowed to have temporary registration, beyond that date, the FCA said.
The FCA also announced in 2018 that cryptocurrency derivatives are capable of being financial instruments under the Markets in Financial Instruments Directive II (MIFID II) and must comply with the regulator’s rules for such products.
In 2019, it also published its “Guidance on Crypto Assets,” which set out three other ways crypto could be regulated. Crypto regarded as utility tokens that grant access to prospective products or services in the U.K. can be regulated under e-money regulations. Crypto firms with digital assets for cross-border payments could be subject to payments services regulations, but the tokens themselves wouldn’t be regulated.
The Treasury announced in January that crypto adverts will be subject to FCA rules. Meanwhile, the Advertising Standards Authority (ASA) has been clamping down on crypto ads to make sure they comply with current regulations and don’t mislead consumers.
What the U.K. really seems to be missing are ways to regulate cryptocurrencies themselves.
“I think the real unregulated aspects (in the U.K.) are other crypto assets, especially cryptocurrencies like Bitcoin or Ethereum,” Patrick Gruhn, head of FTX Europe, which has been considering expanding to the U.K., said in an interview with CoinDesk.
The answer to what is next also partly depends on what crypto companies and trade groups have pushed to the U.K. Treasury. The Treasury has been in discussions with a number of firms, including the Gemini exchange and crypto trade groups, CNBC reported.
The U.K. Treasury didn’t respond to a request for comment.