There seems to be a global race to become the leader in setting the most appropriate regulatory standards for the crypto assets industry. This is no easy task. At UK Finance, we appreciate the work the government has started, working to create a regime that leverages our existing regulations and assessing what more needs to be done to bring crypto assets into our financial ecosystem. UK Finance has been engaging closely with HM Treasury (HMT) and our response to their recent consultation can be found here.

The UK is in an excellent position to be a global leader in this space. Our unique and mature financial services regulatory framework, and our common law system, provides a solid foundation for the regulation of crypto assets. As highlighted in our consultation response, there will of course be areas which need tailoring to crypto assets, as well as some specific aspects that may need standalone regulation.

Separate to the regulations themselves is the preparation crypto firms have begun, anticipating which jurisdictions will not only be the first mover but also offer the most appropriate and effective regulatory framework. This is the area where messaging may have an impact in attracting the best businesses and talent from the cryptoasset ecosystem.

Britain’s “global hub for crypto” sentiment

In April 2022 Rishi Sunak, then chancellor, announced that the UK government had begun plans to make Britain a ‘global hub for crypto asset technology and investment.’

Since then, this rhetoric has not been repeated with the same gusto. This may in part be driven by the significant macroeconomic events that have taken place since Mr Sunak’s speech, and the FTX scandal, which had an incredibly negative impact on the traditional media and parliamentary perception of the crypto assets ecosystem.

Despite this, HM Treasury and regulators continue to push ahead with regulation. They are doing great work to investigate the many intricacies of adapting the existing financial services framework to an incredibly fast-moving sector. Communications from others may impact whether businesses are interested in exploring the UK market while civil servants and regulators work in the background.

For example, a recent Treasury Select Committee (TSC) report sparked a fierce reaction from crypto businesses and various industry bodies as their cryptographic technology was compared to gambling. An HM Treasury spokesperson has suggested they won’t be following this approach stating that “risks posed by crypto are typical of those that exist in traditional financial services and its financial services regulation – rather than gambling regulation”.

We have also welcomed the Financial Conduct Authority (FCA)’s comments during recent business roundtables reassuring firms that they are not anti-crypto and that their authorisations teams are ready to accept crypto firms that can demonstrate they meet the relevant criteria under their AML and CTF regime. Of course the FCA also needs to highlight there are risks and so  the messaging on the FCA’s website as it relates to crypto remains: “if you decide to invest in crypto then you should be prepared to lose all the money you have invested.”

Anticipating regulation

The recent Silicon Valley Bank collapse has proved that the traditional and crypto markets are now intertwined more than ever before and the quicker the UK can facilitate a regulatory regime that allows for both to coexist, the more investment, talent, and value from the crypto assets ecosystem can be brought into the UK’s economy.

While the regulatory and legislative practicalities continue to be worked out, do crypto businesses have confidence to allocate resources and prepare in the background despite the mixed messages coming out of the UK?

This question has become more integral as the EU’s Markets in Crypto Assets (MiCA) framework, at the very least, provides clarity to crypto businesses and Europe has already seen investment into this sector increase.