UK has unveiled formal plans to regulate the cryptocurrency industry, with the government seeking to rein in some of the “reckless” business practices that emerged last year and contributed to the collapse of the FTX exchange.
In a widely anticipated industry consultation launched on Tuesday, the government proposed a series of measures aimed at aligning the regulation of cryptocurrency firms with that of traditional financial firms.
As CNBC reports, among the proposals unveiled yesterday Tuesday was a move expected to strengthen rules targeting financial intermediaries and custodians who store cryptocurrencies on behalf of customers.
A major issue that emerged in 2022 was the rise of risky loans made between multiple crypto companies and the lack of due diligence on the counterparties involved in these transactions.
The UK’s proposals aim to crack down on such activities by seeking to establish a “robust regime to strengthen rules for cryptocurrency lending while enhancing consumer protection and operational resilience of companies,” according to a statement released late on Tuesday.
“We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and that includes cryptocurrency technology,” Treasury Secretary Andrew Griffith said. “But we must also protect consumers who embrace this new technology – by ensuring strong, transparent and fair standards.”
The collapse of FTX came to further intensify efforts by global regulators to regulate a space, such as the crypto space, that is averse to regulation. The European Union and the US have already put forward their own proposals to improve consumer protection.
Regulating the crypto industry takes time. It will probably take years before the measures are approved by Parliament. The Financial Services and Markets Bill, which would recognise crypto assets as regulated products, continues to divide the UK Parliament. The law aims to make the country’s financial sector more competitive post-Brexit.
However, even the indication that there is a willingness to take action is significant, according to some industry executives.
“Having a regulatory roadmap will be extremely helpful for the UK,” Julian Sawyer, CEO of Standard Chartered-backed cryptocurrency custody services company Zodia Custody, told CNBC.
Sawyer, who co-founded UK fintech company Starling and led Gemini’s international expansion, said it was also important to ensure “general alignment between global markets in terms of the approach to digital assets”.
He noted that the European Union was ahead of the curve with its Cryptocurrency Markets Act, which is expected to come into force in 2024. Bitcoin, which has seen its price rise about 40% since the beginning of 2023, currently stands at over $23,000.
The UK wants to become a leader in crypto and blockchain technology on the global stage. However, these ambitions, which were first flagged in April 2022 , have been swamped by a chaotic revolving door of governments.
Rishi Shunak, who took the reins as UK leader in October 2022, is seen by market participants as a cryptocurrency-friendly prime minister , having previously stated that he is “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology”.
As London looks set to compete with EU financial hubs post-Brexit, crypto could be one way to improve its chances, industry insiders have previously said.