In April 2022, the UK government committed to introducing a new regulatory regime for cryptoassets, reflecting the risks and opportunities they present. It is now consulting on its plans to regulate cryptoassets. This consultation focuses specifically on the future UK regulatory framework for cryptoassets used within financial services, rather than the wider application of distributed ledger technology (DLT) in financial services or the use of cryptoassets outside financial services.
It seeks to regulate a wide range of cryptoasset activities. Its proposals will place responsibility on crypto trading venues for defining the detailed content requirements for admission and disclosure documents, with the aim to ensuring crypto exchanges have fair and robust standards.
The proposals will update the rules regarding financial intermediaries and custodians – which have responsibility for facilitating transactions and safely storing customer assets. This is intended to improve the rules around the lending of cryptoassets and to enhance consumer protection and the operational resilience of firms. As part of this, the consultation seeks views on improving market integrity and consumer protection by setting out a proposed crypto market abuse regime.
Proposals are centred around several important cryptoasset activities – including exchange activities, custody activities and lending activities, which the government is intending to bring into the regulatory perimeter for financial services.
For each activity the consultation sets out key design features of the regime covering themes such as prudential requirements, data reporting, consumer protection, location policy and operational resilience.
The consultation paper also proposes regimes for a range of issues which apply across cryptoasset activities and business models, including market abuse and cryptoasset insurance and disclosures.
In addition, to address industry concerns about the small number of Financial Conduct Authority authorised cryptoasset firms who can issue their own promotions, HM Treasury is also introducing a time limited exemption. Cryptoasset businesses that are registered with the FCA for anti-money laundering purposes will be allowed to issue their own promotions, while the broader cryptoasset regulatory regime is being introduced.
The government’s proposed measures have been informed by recent market events – including the failure of FTX – which it says reinforce the case for effective regulation and sector engagement.
The consultation ends on 30 April, after which time the FCA will carry out a detailed consultation on detailed rules for the sector.
