The UK government has decided to step in and regulate the rapidly-growing cryptocurrency industry within its jurisdiction, especially with recent market developments.
In a consultation document published by the UK's economic and financial ministry, HM Treasury, the government proposed several measures targeted at regulating crypto asset businesses just like other traditional financial firms operating in the country.
"Robust" Regulations to Ensure Consumer Protection
One of the main targets of the proposals is to strengthen the rules for financial intermediaries and custodians who hold cryptocurrencies on behalf of clients. The UK government intends to enforce strict regulations on risky loans between different crypto firms.
The government is especially interested in this aspect given that it was the main reason behind the cataclysmic collapse of several crypto firms, including FTX, last year. Due to the high level of contagion, FTX's bankruptcy triggered a domino effect that dragged down numerous other firms with it, caused massive losses for investors, wiped out over £1.2 trillion off the value of the wider crypto market, and damaged confidence in the industry.
Commenting on the proposal, Andrew Griffith, the Economic Secretary to the Treasury, pointed out that the government’s intention to regulate the domestic crypto industry is to ensure maximum consumer protection without ceasing technological development.
He said, "We remain steadfast in our commitment to grow the economy and enable technological change and innovation — and this includes crypto asset technology. But we must also protect consumers who are embracing this new technology — ensuring robust, transparent, and fair standards."
Additionally, the proposal will enforce strict transparency requirements on crypto exchanges, which will require them to publish relevant details and lay out precise approval requirements for digital trading assets. The proposed rules will also provide guidelines on crypto advertisements, enabling only entities registered with the Financial Conduct Authority (FCA) to launch their promotional campaigns.
The upcoming regulation, however, could take a few years before Parliament officially approves it. Still, with the latest developments in the crypto industry, regulations are only expected to be the new normal.
By publishing its crypto consultation, the UK government is taking a big step towards establishing an appropriate regulatory framework for the crypto industry and this will go a long way to boost its ambition to become a global crypto hub.
Last week, former UK Chancellor, Philip Hammond, warned that the UK's cautious approach to regulating crypto is making it fall behind other countries in establishing itself as a financial centre for digital assets.
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