The government is attempting to control some of the careless business practices that have evolved over the past year and contributed to the demise of FTX. The U.K. officially unveiled intentions to regulate the cryptocurrency industry.
The government put up a number of recommendations in a much-awaited industry consultation that was opened on Tuesday with the goal of bringing regulation of crypto asset businesses into line with that of traditional financial institutions.
One of the ideas announced on Tuesday would make it more difficult for financial intermediaries and custodians to hold cryptocurrency on behalf of clients.
The rise of dangerous loans issued between various crypto businesses and the absence of due diligence on the counterparties in those transactions were two major themes that developed in 2022.
According to a statement released late Tuesday, the U.K. proposals would severely restrict such activities. They aim to create a “strong world-first system reinforcing laws around the lending of crypto assets, whilst boosting consumer protection and the operational resilience of enterprises.”
According to a statement from Andrew Griffith, the Treasury’s economic secretary, “We remain committed in our commitment to build the economy and promote technological change and innovation, and this includes crypto asset technology.”
But we also need to safeguard consumers who are utilizing this new technology by establishing strict, open, and equitable norms.
The efforts of international regulators to control the regulatory-averse crypto industry have become more urgent with the bankruptcy of FTX. To strengthen consumer protections in cryptocurrency, both the European Union and the United States have already put up their own suggestions.
“Recent events in the crypto market underline the need for prompt, clear, and effective regulation,” Griffith stated in a speech on December 2.
BlockFi and Genesis Trading, two digital asset lending companies with exposure to the crypto giant, went bankrupt as a result of FTX’s collapse, which is said to have utilized customer money to execute dangerous loans and trades.
The measures published on Tuesday would also impose stricter transparency regulations on cryptocurrency exchanges, requiring them to publish pertinent disclosure papers and establish definite admittance standards for trading digital assets.
Another plan would loosen stringent regulations on cryptocurrency advertising, enabling companies registered with the Financial Conduct Authority to run their own campaigns until the more comprehensive crypto framework is implemented.
The regulatory action coincides with the chill of a severe downturn known as “crypto winter” being felt by cryptocurrency firms in the UK and elsewhere.
After the collapse of FTX and a drop in cryptocurrency prices, investors are slashing company values, and the sector has also been afflicted by multiple waves of layoffs. The London-based cryptocurrency exchange Luno downsized 35% of its staff last week, affecting roughly 330 positions.
It takes time to regulate. Before the proposals are passed by Parliament, it will probably take years. Parliament is still debating the Financial Services and Markets Bill, which would classify digital currency as a regulated good. The measure intends to increase the nation’s financial industry’s competitiveness after Brexit.
However, some business leaders claim that even the most basic demonstration of taking action is significant.
The UK will benefit greatly from having a legislative roadmap or regulatory direction of travel, according to Julian Sawyer, CEO of Standard Chartered-backed crypto custody services provider Zodia Custody, in an interview with CNBC on Tuesday.
According to Sawyer, who previously co-founded the British fintech company Starling and oversaw Gemini’s worldwide expansion, it’s crucial to guarantee “overall coherence amongst global markets in terms of the approach to digital assets.”
He pointed out that with its Markets in Crypto-Assets law, which is scheduled to take effect in 2024, the European Union has acquired an early start.
Bitcoin, which has covertly increased by about 40% since the beginning of 2023, was selling at a steady price of $23,103 on Wednesday.
Ambitions for a global crypto center
The United Kingdom aspires to dominate the world in blockchain and cryptocurrency technology. These objectives, which were initially outlined in April 2022, have been hampered by a disorganized revolving door of governments.
Market participants view Rishi Sunak, who assumed control of the U.K. in October 2022, as a crypto-friendly prime minister. He has previously stated that he is “committed” to making the U.K. “the jurisdiction of choice for crypto and blockchain technology.”
Industry experts previously stated that cryptocurrency might be a method for London to increase its prospects as it seeks to compete with other EU financial hubs after Brexit.
Jordan Wain, U.K. public policy manager at Chainalysis, told CNBC in November that there was a chance to “provide clarity to the industry and let it play its role in delivering its mandate to encourage firms to invest, to develop, and to create employment in the U.K.”