UK Government Publishes Final Proposals for Crypto, Stablecoin Regulation

Introduction

UK’s Phased Crypto Regulation Approach: A Pathway to Becoming a Crypto-Asset Hub

The UK government has released its final crypto regulations, adopting a phased approach. Early next year, they will introduce legislation for fiat-backed stablecoins. Other areas like algorithmic stablecoins will follow, with lending and trading activities falling under traditional financial regulation overseen by the Financial Conduct Authority (FCA). These plans align with Rishi Sunak’s April 2022 policy to establish the UK as a crypto-asset hub, addressing industry concerns of government delays.

Treasury Minister Paves the Way for Crypto Business Growth with New Regulations

In a statement, Treasury Minister Andrew Griffith expressed satisfaction in presenting the final cryptoasset regulation proposals for the UK, emphasising that these regulations make the UK an ideal choice for launching and growing cryptoasset businesses.

The Treasury initiated a crypto consultation in February, which concluded in April. In June, Parliament passed the Financial Services and Markets Act 2023, granting regulated status to crypto activities.

The government’s goal is to subject crypto to conventional financial service regulation. Griffith has made adjustments to clarify the treatment of cryptoassets, including those considered traditional financial instruments and non-fungible tokens (NFTs).

Exclusions and Considerations for NFTs

The proposed regulations aim to exclude cryptoassets that are already regulated, such as traditional securities. Unique NFTs, resembling collectibles or artwork, are not targeted for financial services regulation. However, NFTs used as exchange tokens, especially when released in large quantities with little price variation, may fall under future financial rules.

UK Crypto Industry Awaits FCA Consultations and Foreign Firm Equivalence Measures

The FCA is set to initiate consultations on an authorisation system for crypto companies. Additionally, the government plans to establish equivalence measures for foreign firms, allowing overseas-regulated trading venues to authorize their UK branches, with specific details to be determined by the FCA.

DeFi: No Plans for a Ban, Yet

The government clarified that it has no plans to ban decentralized finance (DeFi), considering it premature to regulate this sector at the moment.

Regulating Stablecoins and Ensuring Financial System Resilience in the UK

Additional government documents reveal that the issuance or custody of fiat-backed stablecoins will be regulated under existing 2001 financial services rules. New regulations will also be introduced to ensure the resilience of digital payment systems, preventing them from posing a threat to the financial system. The central bank initiated consultations on systemic stablecoin regulations in May.

The government’s approach to regulation has sparked debate. Members of the House of Commons’ Treasury Committee have expressed concerns that subjecting cryptocurrencies like bitcoin (BTC) and ether (ETH) to traditional financial service regulations might create a false sense of security. The government has previously dismissed proposals to classify crypto as gambling.

The crypto sector has voiced frustrations over FCA delays and inadequate feedback. New regulations limiting crypto promotions have prompted some prominent companies to cease their services in the UK.

Stay Informed and Compliant: Get Professional Crypto Tax Advice with Crypto Tax Degens

In light of the UK’s final crypto regulations and the evolving landscape of the crypto industry, it’s crucial for you to stay informed and compliant. Cryptocurrency taxation can be complex, and to ensure you navigate it successfully, consider seeking professional crypto tax advice.

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