The United Kingdom has become one of the first countries in Europe to pass a comprehensive law that recognizes cryptocurrencies and stablecoins as "regulated financial activity," thereby paving the way for more clarity and innovation in the cryptocurrency sector. The House of Commons passed this law in the United Kingdom. The Financial Services and Markets Bill, which aimed to provide crypto businesses and investors in the UK with transparency and assurance, was given royal assent by King Charles on July 3, 2023. The bill's primary objective was to achieve this goal.
The bill, which the Treasury presented in March, seeks to amend the Financial Services and Markets Act of 2000 to place cryptocurrency assets and activities related to them under the purview of the Financial Conduct Authority (FCA). "a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically," according to the bill's definition of a crypto asset. In addition, it divides digital assets into three distinct categories, namely exchange tokens, utility tokens, and security tokens, according to the characteristics and purposes of each.
Additionally, the bill outlines the guidelines and specifications that exchanges, custodians, brokers, and advisors who offer services relating to cryptographic assets must follow. Among these are registering with the Financial Conduct Authority (FCA), complying with regulations regarding the prevention of money laundering and the funding of counter-terrorism, conducting due diligence on customers and transactions, and maintaining adequate capital and risk management.
This bill aims to create a regulatory framework for crypto assets in the UK that is transparent and unified, with the goals of enhancing consumer protection, market integrity, and innovative thinking. Additionally, the bill brings the United Kingdom in line with the recommendations of the Financial Action Task Force (FATF), which is the organization that sets the global standard for the fight against money laundering and the financing of terrorist organizations.
After the bill has been given royal assent and gone through secondary legislation, it is anticipated that it will become law sometime in early 2024. The Financial Conduct Authority (FCA) will publish additional guidance and consultation papers regarding the bill's implementation.
The proposed crypto regulation bill in the UK is viewed as a positive step by many industry players and experts, who believe it will boost the legitimacy and adoption of crypto assets in the country. A large number of industry players share this view. Additionally, the bill reflects the aspiration of the United Kingdom to become a global leader in financial technology and digital innovation, particularly after the country leaves the European Union.
The new legislation is very similar to the Markets in Crypto-Assets (MiCA) regulation proposed by the European Commission in 2020. This regulation will establish a standardized regulatory environment across the European Union for crypto assets. However, the law in the UK goes further than MiCA in some aspects, such as allowing crypto firms to apply for a "sandbox" regime, which provides them with temporary regulatory relief to test innovative products and services. This regulation is one example of how UK law goes further than MiCA.
According to the United Kingdom Treasury, the new law will also ensure that cryptocurrencies are subject to anti-money laundering and counter-terrorism financing rules, consumer protection measures and prudential standards. In addition, the law will provide the Financial Conduct Authority (FCA) with the authority to supervise crypto companies and ensure that they comply with the applicable regulations.
It is anticipated that the move by the United Kingdom to embrace crypto regulation will increase the adoption and innovation of crypto assets in Europe and attract more foreign investment and talent to the rapidly growing crypto sector in the United Kingdom. According to a CryptoUK report, a self-regulatory trade association for the UK crypto industry, the United Kingdom has already established itself as a leading hub for fintech and blockchain. This is evidenced by the country being home to more than 400 companies involved in crypto-related activities.
According to another estimate in the report, the cryptocurrency industry in the UK contributed £3.4 billion to the economy that year and supported more than 35,000 jobs. The report forecasts that these figures will significantly increase over the next few years as many individuals and businesses adopt crypto assets for various applications.
The fact that a major economy is willing to embrace and regulate crypto assets in a balanced and proportionate manner is demonstrated by the new crypto law passed in the United Kingdom, which is a welcome development for the global crypto community. The United States of America, India, and China are just some countries considering introducing or revising their crypto regulations, and this law could serve as a model for them to follow.
The newly enacted crypto law in the UK may have good and unfavourable repercussions for cryptocurrency investors. On the one hand, it might make it possible for them to benefit from increased legal certainty and protection for their investments, in addition to enabling them to gain access to additional opportunities and markets. On the other hand, it may expose them to increased regulatory scrutiny and intervention, in addition to increasing the costs and obligations associated with complying with the law for them. As a result, investors in cryptocurrencies should carefully evaluate how the new law will affect their portfolios and strategies, and they should consult with industry experts if they have any questions or concerns.