Following a consultationTreasury today (October 30) released a report detailing responses and updated changes to a broad set of proposed regulations.
The regulations, which focus on stablecoins and the financial promotion of cryptoassets, will be divided into two parts, and secondary legislation will be presented to Parliament next year.
Firms undertaking activities in cryptoassets will now need to be authorized by the Financial Conduct Authority, which will include requirements for crypto exchanges to create detailed requirements for admission standards and require disclosures when listing new assets.
“The government’s position is that businesses dealing directly with UK consumers should be required to be licensed, regardless of where they are located,” the report said.
The Treasury also refused to regulate decentralized finance (DeFi) in this regulatory phase, saying it would be “premature and ineffective.”
Albert Weatherill, financial services regulation partner at Norton Rose Fulbright, noted that there are still “many unknowns” in the regulations, such as when the regulations will come into force and how applicants can be allowed to participate in crypto-related activities.
“The main challenge for regulators is to provide this certainty as quickly as possible, so that the industry can begin to adapt to its new regulatory reality,” he added.
The regulation is part of a wider aim by Prime Minister Rishi Sunak to make the UK a global crypto hub, after he advocated the launch of a non-fungible token (NFT) manufactured by the Royal Mint.
“The Government’s ambition to make the UK a global hub for crypto-asset technologies remains firm,” said City Minister Andrew Griffith.
“To achieve this ambition, we need to make the UK a place where cryptoasset companies have the clarity to invest and innovate, and where customers have the protections to use these technologies with confidence.”
The consultation, which ran from February to April, found that 79% of comments received were mostly supportive, with the regulation of NFTs being the most prominent theme in the responses.
The report states that unique NFTs that act as collectibles “should not be subject to financial services regulation.” However, NFTs used as an exchange token could fall under future financial services rules.
In the meantime, regulation of asset-backed stablecoins will also come into force, and other areas such as algorithmic stablecoins will follow in subsequent legislation.
In May, the Treasury Committee pushed back against proposed regulationsstating that it could give crypto “unwarranted legitimacy”.
“Given that retail trading in unsecured cryptocurrencies is more like gambling than a financial service, MEPs call on the government to regulate it as such,” the commission said in a report.