By Huw Jones
LONDON (Reuters) – Britain said on Monday it would legislate to implement its first set of rules to regulate the crypto sector, requiring market participants to be authorised before they can offer services to consumers.
Cryptoassets remain a tiny part of the world’s financial system, although the price of bitcoin has recovered after the collapse of crypto exchange FTX raised concerns about links to mainstream finance and harms to consumers.
The European Union has already started deploying the world’s first set of comprehensive rules specifically for cryptoasset markets in June, which are attracting crypto firms keen for regulatory certainty to set up base in the bloc.
Britain’s finance ministry said it would move ahead as proposed in a February public consultation, requiring firms undertaking cryptoasset activities to be authorised by the Financial Conduct Authority, although it gave no start date.
The rules, which draw lessons from the FTX collapse, focus on cryptoassets, such as bitcoin, and the underlying distributed ledger technology (DLT) or blockchain that underpins the sector, and seen as promising for uses such as the settlement of securities.
“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 ministry said.
The rules cover the offering of a cryptoasset, operating a trading platform, swapping cryptoassets for currencies such as sterling, arranging investments and lending in cryptoassets and safekeeping or custody.
The ministry said the new rules will be brought under market law, rather than exist as a standalone regime.
“It’s unlikely that crypto regulation will be easily shoe-horned into the existing regulatory framework,” said Jonathan Cavill, a lawyer at Pinsent Masons. “The reality is that as the market develops at pace, the UK runs the risk of being left behind if it fails to attract crypto businesses.”
IN LINE WITH EU
The ministry said Britain remains committed to creating a regulatory environment in which firms can innovate, while maintaining financial stability so that people can use new technologies both reliably and safely.
It said it would accelerate overall implementation of the rules in order to give the sector clarity, with secondary legislation presented to parliament next year.
“At a high level, the Treasury’s approach is broadly consistent with what we have seen in the EU,” said Sophia Le Vesconte, fintech counsel at Linklaters law firm.
Crypto companies currently only face requirements to have safeguards against money laundering, although Britain introduced rules this month on marketing cryptoassets.
The UK announcement comes at a time of reviving fortunes for the crypto sector after bitcoin, the largest cryptocurrency by circulation, had lost much of its value amid the FTX and other scandals over the past year.
Last week bitcoin rose to $38,872, its highest in nearly a year and a half, on mounting speculation that an exchange traded bitcoin fund is imminent in the United States.
The ministry said it would also regulate stablecoins, a digital currency backed by government-issued currencies for retail payments, and will present legislation in 2024 to give the FCA powers to oversee them.
The ministry also said it would set out regulations on how to manage the failure of a major stablecoin.
(Reporting by Huw Jones; Editing by Andrew Cawthorne, Peter Graff and Louise Heavens)