UK: Consultation paper on crypto assets regulation

HMT has published a consultation paper welcoming feedback on proposed crypto regulations from any market participant and users.

The proposals focus on the “future UK regulatory framework for crypto assets used within financial services” to create a safe environment for crypto providers to operate and grow in the UK while ensuring the protection of consumers. To this end, the UK government suggests that the regulatory framework for crypto assets “should follow the standards expected of other similar financial services activities, commensurate to the risks they pose while harnessing potential benefits of the technology behind them”. 

Most eye-catching proposals and questions for the public include: 

  • The proposal to leave crypto assets outside of the definition of a “financial instrument”.
  • the financial services regulation of crypto assets is to be part of the regulatory framework established by the UK’s Financial Services and Markets Act 2000 (FSMA)
  • “Do you agree with HM Treasury’s proposed approach to using the MiFID-derived rules applying to existing regulated activities as the basis of a regime for crypto asset intermediation activities?”
  • “Do you agree with HM Treasury’s proposal to apply and adapt existing frameworks for traditional finance custodians under Article 40 of the RAO for crypto asset custody activities?”
  • already registered market players will have to repeat the registration procedure to be assessed “against a wider range of measures”. 
  • “How can the administrative burdens of FSMA authorisation be mitigated for firms which are already MLR-registered and seeking to undertake regulated activities?”
  • algorithmic stablecoins are covered by the regulation as unbacked crypto assets
  • “Do you agree that so-called algorithmic stablecoins and crypto-backed tokens should be regulated in the same way as unbacked crypto assets?”
  • financial services activities will be regulated, rather than the assets themselves – thus if NFTs and utility tokens are used in one of the regulated activities, they will be covered 
  • by future regulations 
  • “Do you agree with the assessment of the challenges and risks associated with vertically integrated business models?”
  • “Are there any commodity-linked tokens which you consider would not be in the scope of existing regulatory frameworks?”
  • “Do you agree that the scope of the market abuse regime should be crypto assets that are requested to be admitted to trading on a crypto asset trading venue (regardless of where the trading activity takes place)?”

The consultation paper is available here. Feedback is accepted until April 30, 2023.