Crypto Country? UK joins the EU in crypto regulation

Just a few years ago, if someone had mentioned “cryptocurrency,” I would immediately imagine a digital currency that operates outside of the law, in the back streets or on the dark web and funding illicit activities. Those investing in a decentralised currency may also have viewed themselves as ‘outlaws’ and the volatility of it may have been exciting, much like a slot machine in Vegas.

But now, it is a global phenomenon recognised by nations, businesses, celebrities and your average Joe. The mainstream coverage of cryptocurrencies such as the likes of Bitcoin and Ethereum has been vast this past year and it’s only going to get more popular. So, would you consider yourself to be pro-cryptocurrency or crypto sceptic?

Even with its popularity, it can’t currently be used as a typical currency to walk into a café and purchase a latte. A way to solve this is through regulation and acceptance from countries.

We’re experiencing a shift in regulatory attitudes – one in which nations are now opening their arms to cryptocurrency and the economic benefits it could bring such as global financial inclusion.

Crypto had caused a very ‘will they or won’t they’ regulatory stance up until recently. On 5 October, the European Union passed regulations under Markets in Crypto Assets (MiCA) which will allow crypto assets to be traced the same way that other fiat currencies are. These regulations will come into play in 2024.

On 21 October 2022, the UK followed in the footsteps of the EU’s MiCA by voting to recognise cryptocurrency as regulated financial instruments. The Financial Services and Markets Bill (FSMB) was originally going to regulate just stablecoins but this new amendment will permit regulation of all crypto assets.  

So, what could crypto regulation look like under FSMB? We explore what the next steps will be to make the UK a crypto-friendly nation.

What is the Financial Services and Markets Bill (FSMB)?

As many of you may already know, on 20 July 2022, the Government laid the Financial Services and Markets Bill (FSMB) in Parliament. The  FSMB aims to foster a competitive financial sector and regulatory reforms to set a standard for financial services as well as revoke EU financial regulation.

According to HM Treasury, “the Bill sizes the opportunities of EU Exit, tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre and deliver better outcomes for consumers and businesses.”

The Bill would deliver the “government’s vision for an open, green and technologically advanced financial services sector that is globally competitive.”

How has the FSMB changed to include cryptocurrency?

Originally, the FSMB addresses challenges presented by Brexit, climate change, and Wholesale Markets review and looked to include regulatory frameworks for stablecoins – a more stable way of investing compared to other more volatile cryptocurrencies.

On 21 October 2022, there was an amendment to the FSMB proposal, introduced by Parliamentarian, Andrew Griffith. The House of Commons, the lower house of the British Parliament, voted to recognise all cryptocurrencies as regulated financial instruments.

The Bill will now go to the House of Lords, and if the law is passed, the UK Treasury will have the power to regulate all cryptocurrencies.

By embracing cryptocurrency, the UK would indeed reap the benefits of technology’s advances and become “globally competitive.”

The newly appointed Prime Minister, Rishi Sunak, is a known crypto supporter and understands the economic opportunities it could bring, so the FSMB amendments do not come as a surprise for many. Under the FSMB, regulated crypto assets could be labelled “Digital Settlement Assets” (DSA).

Following this amendment, there will be measures to achieve a sense of clarity around crypto.

The next steps in UK crypto regulation

On 27 October 2022, Deputy Governor for Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority (PRA), Sam Woods, discussed growth and competitiveness. He mentions that the Bank of England and PRA “are moving forward to create a regulatory framework for systematic stablecoins,” allowing “non-banks and PRA-regulated banks to innovate in this space.” The Bank will be consulting on this new regulatory regime in the New Year of 2023.

During his crypto proposal, Andrew Griffith also said, “the substance here is to treat them [crypto] like other forms of financial assets and not to prefer them, but also to bring them within the scope of regulation for the first time.”  

On a separate note, in an exclusive interview with Cointelegraph, UK Member of Parliament and chairperson of The Crypto and Digital Assets All-Party Parliamentary Group, Lisa Cameron shared her vision on cryptocurrency. She believes that crypto is definitely on the regulatory radar but there is still much more education and learning to be done.

“We are on a learning curve and it’s just very, very important because the U.K. government has a policy vision that the U.K. will become an international hub of cryptocurrency and digital assets,” explained Lisa Cameron.

CUBE comment

MiCA and amendments to the FSMB are great examples of nations taking steps to embrace cryptocurrency and maximise its economic benefits – especially during a time of financial turmoil caused by war, climate change, Covid-19 and inflation.

Crypto’s reach is limitless, if regulated extensively, the sky is the limit for global economies. Officials need to consult with regulators and stakeholders to ensure that regulatory frameworks truly reap the benefits of crypto and address the risks such as illicit behaviours.

It’s a time when regulators need to work together to formulate laws that ensure accountability, transparency and stability but also allow breathing room for innovation. Crypto can be used for good through effective cross-border communication to figure out global standards. As crypto has a global footprint, it operates in multiple jurisdictions and requires the same level of compliance attention.

Regulation is on the way for crypto providers and now is a great time to figure out how these new rules will affect your business. Rather than leaving compliance as an afterthought, it is best to prepare for the future by planning ahead and ensuring your firm meets compliance requirements.

Compliance does not have to be a burden. CUBE’sAutomated Regulatory Intelligence (ARI) can provide tailored regulatory planning to manage changes and reduce risks through gaining access to regulations that matter most to your business, all in one place.

To answer the question – are you pro-cryptocurrency or crypto sceptic – from the beginning of this blog post, instead of choosing one side or the other, perhaps it’s a time to be crypto optimistic.