The UK has taken “world-first regime” to regulate the cryptocurrency industry

The UK has taken measures to regulate the cryptocurrency industry and to enact a “world-first regime” to stop market manipulation. The new strategy for cryptocurrency legislation, according to the government, would also seek to expand the economy and promote innovation in the budding industry.

robust approach

Although they won’t release specifics until Wednesday, ministers hope to bring cryptocurrency closer to the rules governing how traditional financial institutions operate. The Treasury stated in a statement that its new “robust approach” to regulating the industry will reduce “the most significant risks” while also enabling the UK to benefit from crypto innovations.

The decision was made following a string of high-profile global failures that shook the cryptocurrency sector, including the demise of the top bitcoin exchange, FTX.

In a manner similar to how it handled traditional finance, the Treasury stated that it “will seek to regulate a broad suite of crypto-asset activities”.The task of “defining the detailed content requirements for admission and disclosure documents” will fall to cryptocurrency trading platforms. The Treasury claimed that by doing this, “crypto exchanges will have fair and robust standards.”

crypto market misuse

Additionally, it declared that it would tighten regulations governing custodians and financial intermediaries.

The Treasury stated that the consultation would “seek opinions on how to improve market integrity and consumer protection by setting out a proposed crypto market misuse framework.

The Treasury Department announced that the full details of the consultation would be released on Wednesday morning.

Instead of more discussions, Labor demanded urgent action.

“Labour has been calling for a crackdown on the crypto wild west for months,” said shadow city minister Tulip Siddiq. We need to take action right away, yet all the Conservatives are pledging is more consultations.

World-first regime

In order to promote sector growth and innovation while preserving financial stability and unambiguous regulatory norms, the UK government is conducting consultations on a proposed regulatory framework for crypto assets. This consultation is a result of the recommendations made in the Financial Services and Markets Bill (FSMB) to incorporate stablecoins and other “digital settlement assets” into the existing e-money framework.

Based on analogous existing financial regulated activities, a variety of new specific crypto asset regulated activities will be developed. This most likely means that companies that conduct their business primarily in crypto assets, or “crypto native firms,” will need to apply for full FCA authorization and supervision. Existing conventional finance or “tradfi” organizations will be able to broaden the scope of the activities they are permitted to engage in using crypto assets.

cryptoassets

According to the government, cryptocurrency assets and the operations supporting their usage should adhere to the same criteria as other comparable financial services activities. As a result, the government will regulate cryptocurrency assets within the parameters of the Financial Services and Markets Act (FSMA).

In order to reflect or closely resemble regulated activities carried out in traditional financial services, HM Treasury (HMT) is proposing to create a number of new specific crypto asset-regulated or designated activities. As a result, cryptoassets will become a new specified investment. A company must be authorized by FSMA and have permission to engage in these activities if it wants to do so.

UK consumer

HMT is recommending that crypto asset activities that are offered in or to clients in the UK be regulated because UK consumers can access services involving digital assets from anywhere in the globe. As a result, offshore businesses that perform services for clients in the UK must obtain UK authorization. HMT is thinking about making exceptions to this strategy, such as allowing “reverse solicitation,” which would occur if a UK consumer used a specific crypto asset service wholly on their own initiative. ‘Reverse solicitation’ is already a difficult concept inside traditional financial services; therefore, it is unclear how this would be enforced to prevent regulatory arbitrage. Additionally, HMT is thinking about deference or equivalence agreements with other countries that have comparable requirements.

cryptocurrency markets

The consultation emphasizes the several difficulties in identifying market abuse in cryptocurrency markets compared to traditional markets: its borderless nature, inside information that can be possessed or produced by parties other than the issuer, such as miners and validators, and a higher percentage of retail clients. However, the underlying technology, like blockchain’s transparency, may have benefits. HMT understands that it will be challenging to provide the same level of market integrity and consumer protection as is provided in conventional securities markets until international norms and coordination are in place. It will be necessary to inform customers and market participants of these restrictions.

Verdict

Insider dealing, market manipulation, and the unauthorized disclosure of inside information are covered by the regime, which is modeled after MAR. It would apply to anyone engaging in market abuse on a cryptocurrency asset trading venue in the UK, regardless of where the activity is taking place (it could be overseas).

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