The Treasury has unveiled proposals to regulate cryptocurrency, following widespread calls to action following the spectacular collapse of one of the world’s largest trading exchanges.
The government is promising a “robust” approach to digital assets consistent with traditional finance and says it wants exchanges to have fairer and stricter standards.
Under the plans, crypto platforms would be responsible for defining the requirements that a currency must meet before it is admitted to trading.
Exchanges will also be held responsible for securely facilitating transactions and keeping client assets safe.
It comes after the deputy governor of the Bank of England told Sky News that crypto trading is “too dangerous” to be left out of mainstream regulation.
Speak in light of the sudden bankruptcy of crypto platform FTXSir Jon Cunliffe described the market as “incredibly volatile” and said investors needed more protection.
About 80,000 UK-based customers were affected by the collapse of the world’s second-largest crypto exchange, with one UK investor left with a £1 million hole in his finances.
ftx‘s disgraced founder, Sam Bankman Friedsince pleaded not guilty to stealing billions of dollars in client money.
For a more accessible video player, use the Chrome browser
Are the government’s plans sufficient?
The proposals – which Labor said were too late – come as the crypto industry tries to regain the confidence of shaken investors.
Since the collapse of FTX, the greater market turmoil has led to Bitcoin, the world’s largest token, fall to a five-month low and major exchange Coinbase cut 20% of its workforce.
Less than a year ago, Rishi Sunak, then chancellor, said he wanted the UK’s being a “global hub for crypto assets”..
Andrew Griffith, the Treasury’s economic secretary, said the government is still committed to enabling crypto, but stressed the need to “protect consumers who are embracing this new technology.”
The plans will first be submitted to a consultation, but the Treasury claims the regulation will be a “world first”, suggesting it will come before the expected EU crypto legislation in 2024.
Meanwhile, the Treasury announced it would introduce a time-limited exemption to allow more crypto asset firms to issue promotions after a action against “misleading” advertisements.
Companies registered with the Financial Conduct Authority for anti-money laundering purposes will be allowed to do so as wider regulation is put in place.
For a more accessible video player, use the Chrome browser
‘We’ve waited a long time’
Crypto fraud expert Louise Abbott, partner at Keystone Law, welcomed the proposals.
She told Sky News that the lack of regulation in crypto made it “hugely attractive to fraudsters”.
“We’ve been waiting a long time in this industry,” she said.
“I’m in the fraud business and have seen a dramatic increase in crypto scams and fraud over the last 10 years. Last year I was getting inquiries daily from potential victims who have been scammed through a crypto scam.”
Ms Abbot hopes the regulation can come into effect as early as the summer, adding that it is in the interest of both exchanges and investors for greater market surveillance.
Major players in the industry, including Binance chief Changpeng Zhao, which saw its platform banned in the UK in 2021and Coinbase’s Brian Armstrong have previously welcomed the prospect of increased regulation.
“Unless we become a safer environment, investors will not invest as we have seen,” Ms Abbot added.
Varun Paul, former head of fintech at the Bank of England, now of crypto infrastructure provider Fireblocks, also described the plans as a “positive move”.
He told Sky News that the industry turmoil meant there was a need for “clear rules”, and expressed hope that UK regulations would do the job while encouraging innovation.
