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Government unveils crypto regulation strategy | accountingweb
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Government unveils crypto regulation strategy

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As predicted by the experts at AccountingWEB Live Expo, the UK government has moved to bring digital cryptoasset trading within its financial regulation regime.

1st Feb 2023
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The Treasury published a consultation document today (1 February) on cryptoasset regulation designed to make the UK home to “the most open, well regulated, and technologically advanced capital markets in the world”, according to Economic Secretary to the Treasury Andrew Griffith.

While opinions were sharply divided at the Expo’s big cryptoasset debate two months ago, both crypto enthusiast Joe David (Myna) and sceptic John Toon (Beever and Struthers) agreed that in the current climate of scandal and crypto losses, tighter regulation was inevitable.

After a “turbulent year” marked by the FTX scandal and failure of other crypto platforms including Celsius Network and Voyager Digital, the consultation document noted that the estimated total global cryptoasset market capitalisation of $800bn was down around 75% from a peak of $3tr in November 2021. 

Conflicts of interest

The failure of FTX highlighted questions about conflicts of interest, market conduct and operational resilience, the paper continued. While crypto technology can bring numerous benefits, it will only do so if “the activity is undertaken with appropriate knowledge of the risks,” the document noted. “This underlines and motivates the need for authorities to develop an enhanced regulatory framework for cryptoassets.”

Under the proposed framework set out in the document, the government will pursue a “technology agnostic” policy of equivalence between digital and non-digital assets. The document makes a point of addressing the regulatory issues surrounding different kinds of crypto activity and assets, including crypto issuance and disclosures; trading “venues”; custody services and the activities of intermediaries.

Correct focus

David, who founded Myna as a specialist crypto practice, gave the Treasury civil servants credit for working through these variants in detail: “They went through a list of definitions of cryptoassets and covered most of them, which is good: exchange tokens, security tokens and stablecoins [assets linked to national currencies]. And they were right to focus on them first.” 

The main proposals set out in the consultation timetable below include:

  • making crypto trading venues responsible for setting out detailed disclosure requirements for admission, in a similar fashion to the listing rules for companies on the London Stock Exchange
  • expanding the anti-money laundering (AML) regime for cryptoasset businesses; some firms are already registered with the Financial Conduct Authority for AML purposes and will continue to be allowed to issue promotions while the broader cryptoasset regulatory regime is being introduced
  • stronger rules around financial intermediaries and custodians that are responsible for facilitating transactions and storing customer assets
  • developing a crypto market abuse regime to improve market integrity and consumer protection.

“Effective regulation will create the conditions for cryptoasset service providers to thrive in the UK, and give people and businesses the confidence to invest with an understanding of the often high risks involved,” wrote Griffith in the foreword to the consultation document.

Cautiously optimistic

After an initial scan of the proposals, David was cautiously optimistic: “From what I’ve seen it does feel like they’re on the right track. There are always going to be bits I can pick fault with – for example, it’s fine to announce all these regulatory initiatives, but it’s currently taking crypto businesses four to five months to register with the FCA. It’s all very well wanting to help these people with a framework, but if they can’t trade in the UK for another year they’ll just go offshore.” 

There are also issues around clarifying where customers and regulated crypto providers were based. “A French business with customers in the UK is technically in scope, but regulation wouldn’t work,” said David. “Crypto is about privacy. There needs to be a line somewhere, but how do they expect crypto businesses to track IP addresses when they may or may not have that capability, and clients might not want their IP addresses tracked?”

These are points that can be clarified during the consultation process, which will be open for responses until 30 April. In the meantime, the government has tabled a Financial Services and Markets Bill with clauses laying out the legislative foundations to bring stablecoins and cryptoassets into financial services regulation.

Replies (13)

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By Hugo Fair
01st Feb 2023 20:49

A lot of quotes from Joe David ... but was John Toon really that unaccustomedly silent on the topic?

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Replying to Hugo Fair:
John Toon
By John Toon
06th Feb 2023 12:44

I wasn't asked to comment, but if I had, I would have added that the draft proposals don't address the challenges of using a crypto exchange, like FTX, that can continue to sit outside the UK's proposed regulations as a result of its jurisdiction of residence.

That creates two challenges:
#1 consumers are going to assume they have some level of protection even if they don't. There's enough of a challenge getting people to understand the difference between a "real" bank and an EMI account in the fintech space
#2 if a crypto exchange, irrespective of what they trade, decides to reside in the UK, thus complying with the regs, will they be at a disadvantage to those that remain unregulated. Afterall compliance costs money and that will have to be passed onto the consumer and consumers have been trained to look for the lowest cost of transacting when it comes to most financial services

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By JustAnotherUser
02nd Feb 2023 08:13

Further regulation supports adoption, a step in the right direction.

Not sure I understand this comment - crypto enthusiast Joe David (Mynah) .. "Crypto is about privacy" , with KYC on exchanges already and the blockchain being easily accessible there's no privacy, these exchanges also supply HMRC with customer data over certain thresholds. Trying to also track location is silly as anyone getting their head around crypto can easily use a VPN, this parts a bit silly.

This all seems a tad more suspicious, the wording "UK to become a global hub for cryptoasset technology", reading between the lines the UK Gov want the tech, the companies and the tax but in our other hand right now the majority of UK banks have banned crypto transfers.... so can we become a global hub where no one in the hub can use the services.

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Replying to JustAnotherUser:
By Nick Graves
02nd Feb 2023 12:10

JustAnotherUser wrote:

Further regulation supports adoption, a step in the right direction.

Not sure I understand this comment - crypto enthusiast Joe David (Mynah) .. "Crypto is about privacy" , with KYC on exchanges already and the blockchain being easily accessible there's no privacy, these exchanges also supply HMRC with customer data over certain thresholds. Trying to also track location is silly as anyone getting their head around crypto can easily use a VPN, this parts a bit silly.

This all seems a tad more suspicious, the wording "UK to become a global hub for cryptoasset technology", reading between the lines the UK Gov want the tech, the companies and the tax but in our other hand right now the majority of UK banks have banned crypto transfers.... so can we become a global hub where no one in the hub can use the services.

There are stories that they can break through VPNs if they really want to (using a trojan) and that bits of blockchain can narrow down to which wallet it relates.

So it's not infallible, if rather a lot of data to wade through.

Obviously something like Monero (other anonymous skitcoins are available) is still more anonymous than the original Bitcoin for that reason.

There are non-KYC trading platforms out there, once you've converted your bankster-currency into non-bankster currency, so a whole alternative reality is opened up.

Sure, the Gov't will want to attempt to regulate it out of existence, so you're forced to utilise their nice, safe, CBDC instead...

It's a fascinating concept, even if the learning curve is daunting/overwhelming.

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By Leopold Stotch
02nd Feb 2023 09:51

If they are now regulating crowd-sourced Ponzi schemes trading perpetual zero coupon securities, can we expect FCA oversight of the magic beans market to follow?

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Replying to Leopold Stotch:
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By JustAnotherUser
02nd Feb 2023 11:19

I suspect if the magic beans market takes off and is around for 14 years, reached a trillion market cap, maybe they will regulate it.

Maybe if the magic bean market had 1/2 a billion users they would regulate it more

Maybe if the magic bean market employed 10's of thousands of people, they would regulate it more

Maybe if there were 1/2 a million bean transactions a day....
Maybe if the magic bean market attracted Venture capitalists and invested more than $30bn into crypto and blockchain startups in 2022, they may start thinking they are missing out on something and want to be the tech hub of magic beans, and regulate it...

or they can do nothing because its a ponzi :)

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By AndrewV12
02nd Feb 2023 11:14

Mmmmm a bit of regulation here and there, I would not worry to much.

Trust me, regulation or no regulation its all going to end in tears with crypto currencies and crypto assts.

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Replying to AndrewV12:
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By JustAnotherUser
02nd Feb 2023 11:21

Bitcoin has died 471 times in the last 14 years. https://99bitcoins.com/bitcoin-obituaries/

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Replying to AndrewV12:
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By Michael C Feltham
02nd Feb 2023 11:44

I could not agree more.

Monetary Units in the World, are all Fiat Currencies: i.e. there is little asset backing as there used to be. The underlying Backstop Guarantee is the issuing nation state's economic performance.

If and when a currency suffers serious downside risk, then both the issuers Central Bank, the IMF and the Swiss based Bank of International Settlements all step in to stabilise the troubled currency.

There is NOTHING behind crypto currencies: no asset-base or warranties: they rely solely on the blind hope that the holders have in the forward value.

Well, so did the greedy purblind players on the US equities market in 1929...

As did those speculating in Tulips; and The South Sea Bubble...etc.

I loved the bit about leading players in technology! What planet do these people live on?

Thanks to idiot politicians and the morons in the City, Britain has NO computer industry; no silicon market worth shouting about and no major software developers and scientists.

The two major hopes were ARM Holdings and Dr Mike Lynch's Alchemy. Both sold out to Asia (ARM) and the USA (Alchemy).

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Replying to Michael C Feltham:
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By JustAnotherUser
02nd Feb 2023 12:03

"There is NOTHING behind crypto currencies"

Ah yes the good old BIS and their mates...

This BIS.....?"the Bank for International Settlements (BIS) intends to extend its hand to the new asset class by allowing banks to hold up to 1% of reserves in cryptocurrencies such as Bitcoin (BTC)."

This BIS....? "Project Mariana: CBDCs in automated market makers....

Guess they're all missing out on magic beans

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By moneymanager
02nd Feb 2023 12:22

"“They went through a list of definitions of cryptoassets and covered most of them, which is good: ... and stablecoins [assets linked to national currencies]".

Stable anything linked to a national currency that can and is created out of thin air is no more than what gets shovelled out of a stable. I have tried on a few occassions to undertsand crypto but it seems to mee that as there is always a counterparty who somehow thinks that my fiat currency is worth exchanging for their "tokens", not that the banks and fiat currencies are, when the rubber hits the road, any better, that is an illusion.

All of this is window dressing anyway, we have all seen yet more bank closures announced, we have witnessed both banks and payment systems beign used as politicised weapons against perfectly legal protesters, al of this is leading us with the fevour of our, or rather THE, Prime Minister to the abolition of ALL global currencies nominally denominated with a national face, to the single issuance of Central Bank Digital Currency which Augustin Carstens has said on video will not only give the BIS the ability to see where your assets/their liability is being used but to critically CONTROL its usage at the most granular of levels, in effect YOUR Money will have no more value or utility than the bank decides from time to time.

Price stability WILL come or rather be enforced, all price speculation wil end when all assets and resources have been stripped from the vast majority of the population and all power is vested in a singularity and we were told that as far back as 1920, welcome to the world where "You wil own nothing but you will be happy", what was that about horseshit?

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By JustAnotherUser
02nd Feb 2023 12:35

"there's nothing behind crypto"

Some £500 billion was printed by the Bank of England during the pandemic

USA: All-in money printing totaled $13 trillion

European Central Bank 750 billion

The PBOC can print yuan as needed

naff all behind fiat either, mostly a bunch of rich people pulling the levers, as someone above said.. "You Will Own Nothing & Be Happy"

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By listerramjet
02nd Feb 2023 15:25

Given that the whole point of crypto is to be outside of government control you have to wonder if this is scope creep gone wrong!

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