UK plans to become a global cryptoassets hub
Blockchain, stablecoins, NFTs, cryptocurrency DeFi. What are the regulatory consequences of this financial innovation tsunami?
As the use of cryptocurrencies grows, so are the guidelines that have been put in place to regulate them globally. It might be challenging to stay up to date with the laws in many international jurisdictions because the crypto landscape is continuously changing.
The subject is broad and constantly changing. The information in the following post is not fully comprehensive. Instead, it serves as a “what you need to know” introduction to how blockchain, stable coins, and security tokens are treated under UK financial regulations.
Following Boris Johnson’s resignation along with key cabinet members and the election of new Prime Minister, Liz Truss, market participants expect delays to the agenda but no major policy changes.
This analysis will be based mostly on official declarations and documents published by the previous government in charge. However, who Truss chooses as the next chancellor of the exchequer could also have an impact on U.K. crypto policies.
Crypto Assets & Business opportunities and Stablecoins
Back in April, The government announced moves that will see stablecoins brought within regulation paving their way for use in the UK as a recognized form of payment. This is supposed to create conditions for stablecoins issuers and service providers to operate and invest in the UK. In fact, stablecoins could provide a more efficient means of payment and widen consumer choice.
This is part of a package of measures to ensure the UK financial services sector remains at the cutting edge of technology. It includes:
- Measures include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate
- Establishing a Cryptoasset Engagement Group to work more closely with the industry
- To promote further growth of the cryptoasset market in the UK, the UK government will look into methods to make the tax system more competitive.
- It will examine the tax treatment of Defi loans, in which owners of crypto assets lease them out in exchange for a return.
- Working with the Royal Mint on Non-Fungible Token (NFT) projects
Apart from what is highlighted in the paragraph above, the government will consult on broader regulation for investing risk warnings on cryptocurrencies.
Investors must be fully aware of the protection they are (or are not) receiving. The new guidelines will be set as a risk warning. Supervisory efficiency is essential because crypto assets are not covered by deposit insurance or other compensation plans.
The FCA has identified two types of regulated tokens in the UK:
- security tokens
- E-money token
Security tokens are treated as “Tokens that give rights similar to some investments, including those that are considered financial instruments under MiFID”. Several elements that can qualify a token as an investment will be taken into account when determining if it is a security token.
The contractual obligations and rights that the token owner has as a result of holding or owning that cryptoasset, any contractual right to profit-sharing, or whether the token is transferable and tradeable on cryptoasset exchanges are just a few examples of such factors.
Shares, debt instruments, warrants, units in collective investments, certificates representing specific securities, and rights and interests in investments are some of the most relevant “specified investments” under the current guidance
Differences from the UE strategy
In Europe, a compromise has been reached regarding the regulation of markets in cryptoassets (Mica). While in the UK some things are yet to be defined, it could be said that:
While the EU is essentially going after everything, the UK will start by regulating a select few specified crypto assets and service providers. While the UK is dipping its toe in the water with a restricted “digital settlement asset,” Mica has a broad definition of a “crypto asset.
Service providers are also subject to various regulatory regimes. It’s likely that the UK will concentrate on fewer services, like exchange and custody. The broader definition provided by Mica includes custody, as well as trading between cryptocurrencies and fiat currencies, advising, and more.