30 October 2023
The UK's HM Treasury has published the response to its consultation on cryptoassets, setting out the UK approach to financial services regulation of cryptocurrencies and cryptoassets.
The full consultation response is available on the gov.uk website, but the Financial Times has also provided a great summary.
In brief, the government’s response shows that:
The UK intends to include cryptoassets in the regulatory framework established by the FSMA, rather than develop a standalone regime for cryptoassets
Cryptoassets will be included in the list of ‘specified investments’ in Part III of the RAO, requiring “firms undertaking activities involving cryptoassets by way of business to be authorised by the FCA under Part 4A of FSMA
”Stablecoins backed by fiat currency will be regulated under the Payment Services Regulations; HM Treasury will publish its Stablecoins Update separately with details on activities and tokens in scope for phases 1 and 2 of the regulatory timetable
Algorithmic or crypto-based stablecoins "will be regulated under the wider framework for unbacked cryptoassets. They will not fall within the scope of the forthcoming regulatory regime for fiat-backed stablecoins as they are not backed by fiat currency"
For cryptoexchanges: “trading venues will be required to keep and make available at all times accurate and comprehensive order book data relating to trading on their exchanges"
Not within scope at this stage:
Activities relating to cryptoassets that are already regulated as specified investments, such as security tokens
NFTs: the response clarifies the UK position that “Activities relating to truly unique or non-fungible NFTs [..] are more akin to digital collectibles or artwork than financial services”
Cryptomining activities
Portfolio management and investment advice on cryptoassets will not be regulated separately at this stage
On vertical integration risks (following the collapse of FTX in particular): “the government does not intend to explicitly endorse or prohibit specific business models or corporate structures in legislation.”
On ESG: “The government will proceed with the approach of tackling sustainability issues primarily through disclosures in the first instance.”
On Privacy, it is interesting that: “the government is also supportive of the use of publicly available information to compile appropriate parts of the disclosure / admission documents” for mandatory issuance and disclosure requirements under the regime.
Other privacy issues related to cryptoassets are not within scope of the financial services regulatory approach, but developments in this space will be interesting to follow...