The United Kingdom's (UK) economics and finance ministry, HM Treasury, has released a consultation paper that outlines proposals for a new regulatory regime, informed by recent market developments including the bankruptcy of crypto exchange FTX, as part of an ongoing effort to position the UK at the forefront of the crypto sector.
The paper states that the British government sees the potential for crypto to add significant value to businesses and financial services, but only if an appropriate regulatory framework is applied. The paper outlines the government's belief that crypto "should follow the standards expected of other similar financial services activities, commensurate to the risks they pose, while harnessing potential benefits of the technology behind them." HM Treasury's chief objectives are to "encourage growth, innovation and competition in the UK; enable consumers to make well-informed decisions, with a clear understanding of the risks involved; protect UK financial stability and protect UK market integrity."
"The government’s firm ambition is for the UK to be home to the most open, well-regulated and technologically advanced capital markets in the world. Delivering on this ambition means taking proactive steps to harness the opportunities of new financial technologies. We believe that crypto technologies can have a profound impact across financial services," Andrew Griffith MP, economic secretary to the Treasury, wrote in the paper's foreword. "By capitalizing on the potential benefits offered by crypto, we can strengthen our position as a world leader in fintech, unlock growth and boost innovation. Cryptoasset markets continue to develop with increasing pace and complexity. But this is a nascent sector and as with any emerging technology, this brings risk as well as opportunity. Risk taking is a desirable part of the cycle of innovation and we wish to manage, not stifle, this. Ongoing turbulence in cryptoasset markets has highlighted that risk, with the high-profile collapse of firms like FTX having widespread implications for global cryptoasset markets and investors. Our view is that this reinforces the case for clear, effective, timely regulation and proactive engagement with industry."
According to the paper, the UK plans to model crypto regulatory framework off of the existing framework laid out in the UK’s Financial Services and Markets Act 2000 (FSMA). The government chose this route rather than building a whole new regulatory framework for crypto in an effort to avoid confusion for market participants and to ensure "a level playing field between crypto and traditional financial services firms." Under the FSMA, crypto businesses would be subject to certain authorizations.
The ministry will accept feedback on the proposals for three months before moving forward, Reuters reported.
Binance, the world's largest crypto exchange, said in a Feb. 1 tweet that it "has vocally supported the need for effective and appropriate regulation to help with mainstream adoption of digital assets. We welcome the next steps from the UK Government in making this happen with the @hmtreasury’s publication of plans to regulate crypto activities. It’s our strong belief that a stable regulatory environment helps to support innovation and is essential to establishing trust in the industry, as well as long-term growth. Binance is reviewing the details of the consultation and looks forward to contributing to the process."
Changpeng Zhao (CZ), the Canadian CEO and founder of Binance, said in a tweet, "Happy to see the UK, a global leader in fintech, work on progressive crypto regulation...Regulation provides certainty and a safe space for innovation."