As is common in emerging technology markets, the crypto sector continues to experience high levels of volatility and a number of recent failures have exposed the structural vulnerability of some business models in the sector. The proposed regulations were released cryptocurrency regulation uk as part of the Labour government’s first budget tabled Wednesday. “With increased insight and data due to a longer period of trading history, the FCA believes exchanges and professional investors should now be able to better establish whether crypto-ETNs meet their risk appetite,” the regulator said in a statement.

UK pushes ahead with plans to bring crypto under mainstream regulation

The UK’s financial regulator will allow some bitcoin-linked securities to be listed on the stock market, in a softening of its tough stance on digital assets as investors around the world snap up funds investing directly in cryptocurrencies. It’s my ambition to make the UK a global hub for cryptoasset https://www.xcritical.com/ technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country. In June 2023, we published our final rules for cryptoasset financial promotions in PS23/6. Ambitious plans to protect consumers and grow the economy by robustly regulating cryptoasset activities have been announced by the government.

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So-called “stablecoins” will become recognised forms of payment to give people confidence in using digital currencies, it said. The Treasury has announced that it will regulate some cryptocurrencies as part of a wider plan to make the UK a hub for digital payment companies. Regulators in other major markets have become increasingly comfortable with investors buying crypto-linked securities, as long as the securities are in a regulated product. The Financial Conduct Authority said on Monday it would “not object” to the creation of bitcoin and ethereum-backed exchange traded notes for professional investors. Bim Afolami, the minister responsible for the financial services sector, promised they’d be ready by summer 2024 — but a snap election that Labour won put paid to that. This confidence has been fuelled by the participation or association of major financial institutions, such as BlackRock and Fidelity, including through the launch of Bitcoin exchange-traded funds (ETFs).

• They must be kept in an offline storage vault and held by custodians subject to anti-money laundering rules in the UK, EU, Jersey, the US and Switzerland.
• At the time of writing, Bitcoin had reached an all-time high of $70,000.
• This follows approval by the US Securities and Exchange Commission (SEC) of spot Bitcoin ETFs in January 2024.
• This consultation paper sets out proposals for this future regime and marks the next phase of the government’s approach to regulating cryptoassets.
• “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires.
• The UK’s vision for being a global hub for cryptoasset technology was set out in a speech by the Economic Secretary to the Treasury, John Glen at the Innovate Finance Global Summit today.
• Meanwhile, the US is moving to craft regulations amid rising concern that the cryptocurrency industry is a haven for criminals.

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The process of generating digital coins via banks of powerful computers, called mining, is also highly energy intensive. Recent research suggests Bitcoin now generates carbon emissions comparable to the country of Greece. “But we think that by making this country a hospitable place for crypto we can attract investment [and] generate swathes of new jobs.” UK Financial Services Minister John Glen said the UK saw “enormous potential in crypto” and had a “detailed plan [for] harnessing the potential of blockchain and supporting the development of a world-best crypto ecosystem”. The UK’s Treasury said regulating stablecoins would ensure they could be used “safely” by the public.

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The Treasury also said it planned to consult on regulating a much wider range of digital currencies later this year, without saying which they might be. The OECD released CARF in June 2023 as a way to align global tax reporting rules in the crypto sector … At the start of the year the US approved spot bitcoin ETFs, following countries in the EU, Australia and Canada. The newly approved group of US spot bitcoin ETFs, including ones issued by BlackRock and Fidelity, have collectively pulled $10bn since their launch in January, according to crypto investment group CoinShares. Almost 40% of respondents who did not own crypto said regulatory concerns kept them from entering the market.

The objective of the Taskforce was to bring the Treasury, Bank of England and the FCA together to assess the potential impact of cryptoassets and DLT in the UK and to consider appropriate policy responses. In July 2019, The Economic Crime Plan announced that from January 10, 2020 the FCA will be the Anti Money Laundering and Countering Terrorist Financing (AML/CTF) supervisor for firms carrying on certain cryptoasset activity. See our dedicated cryptoassets AML regime webpages for more information. In April 2022, the government committed to introducing a new regulatory regime for cryptoassets, reflecting the risks and opportunities they present. There are notable differences between MiCAR and the UK’s regulatory plans, such as categorisation of cryptoassets, the scope of regulated activities and disclosure obligations for cryptoasset issuers.

“But we must also protect consumers who are embracing this new technology – ensuring robust, transparent and fair standards,” he added. Ministers say the measures will “mitigate the most significant risks” of crypto technologies, while “harnessing their advantages”. But it also acknowledges some crypto businesses may simply choose to continue operating in offshore jurisdictions that “do not impose equivalent market-abuse rules”.

Late last year it expanded existing rules on how financial firms are allowed to market themselves to crypto businesses. MiCA’s stablecoin rules are in place for exchanges, wallets, and other crypto asset service providers. Since the collapse in November 2022 of global cryptocurrency exchange FTX with a reported $9 billion shortfall, the cryptocurrency market has recently undergone a much-needed resurgence in confidence.

The Treasury has not yet confirmed which stablecoins will be regulated; well-known ones include Tether and Binance USD. Stablecoins are designed to have a stable value linked to traditional currencies or assets like gold. The final regulations are expected to be made in 2025 to come into force on 1 January 2026. While the ousted Tory government pushed to introduce new laws this summer, it will take the new Labour government at least another year to regain the momentum, says Gillian Lynch, head of Europe and Ireland at Gemini.

They are exchanged via “peer-to-peer” transactions, meaning there are no banks or other third parties involved. Tether, a Hong Kong based company, has faced questions over its business practices and was fined $41m in 2021 by the US Commodities Futures Trading Commission for allegedly misstating its reserves. They are considered less volatile than cryptocurrencies such as Bitcoin.

In contrast, decentralisation – a commonly perceived feature of cryptocurrencies – raises regulatory concerns because it puts significant responsibility on individuals to protect their assets. The risk of people losing access to their digital wealth due to forgotten passwords or lost hardware remains a challenge for decentralisation and may strengthen the appeal of stablecoins. The government launched a consultation on cryptoassets and stablecoins last year and has today published its response setting out the next steps. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation. Learn more about our work on cryptoassets to ensure consumers are protected, market integrity is upheld, and competition works in the interest of consumers.

The so-called crypto winter has raised questions about whether the industry can ever be effectively regulated. But with the right form of regulation, others will argue, the industry could truly blossom. Part of the original appeal of cryptocurrency was its independence of traditional financial networks. But I expect the consultation to be fiery, with many different groups wading into the debate about how to tame the wild beast of Bitcoin and other digital coins.

The UK had become one of the last major markets to hold out against the trading of crypto-related securities, even though the government has been championing the country as a potential centre for digital asset markets. In his Mansion House speech in July 2021, the Chancellor set out his vision for the future of the financial services sector, which included a plan to ensure that the UK remains at the forefront of technology and innovation. This was one of four key components of that vision, with the ultimate aim of building a financial services sector that continues to be one the rest of the world looks towards. The UK Government announced the Taskforce in March 2018 as part of its wider Fintech strategy and in response to the Treasury Select Committee’s investigation into digital currencies.

Jason Guthrie, European head of digital assets at the financial firm, Wisdom Tree, said the sector had a bright future. The “devil would be in the detail”, he told BBC News, but he “absolutely welcomed” regulators looking at cryptocurrency – and the right regulation would be in the interests of the industry as well as customers. This consultation paper sets out proposals for this future regime and marks the next phase of the government’s approach to regulating cryptoassets. It builds on previous HM Treasury proposals, which focussed on stablecoins and the financial promotion of cryptoassets.