UK finalizes plans to regulate Wild West crypto sector

The Treasury is finalizing plans for a package of comprehensive rules to regulate the cryptocurrency industry, including restrictions on foreign companies selling to the UK, provisions to deal with company collapses and restrictions on advertising products.

Ministers will soon launch a consultation on the new regulatory regime after FTX's implosion brought new urgency to the government's promise to bring order to the "wild west" of finance.

Prime Minister Rishi Sunak said in April, when he was still chancellor, that “effective regulation” would help make the UK a global hub for cryptoasset technology and “encourage the companies of tomorrow to invest, innovate and expand on British shores.”

The Financial Conduct Authority began investigating the money laundering controls of UK-based crypto firms this year, but it lacks broader powers to protect consumers in areas such as misleading selling, false advertising, fraud and mismanagement.

The new powers will allow the FCA to oversee crypto more broadly, including monitoring how companies operate and promote their products, three people familiar with the Treasury's thinking said.

They added that there would be restrictions on sales from overseas into the UK market and that the proposals would set out how crypto businesses can be wound up.

The powers will be part of the Financial Services and Markets Act, a wide-ranging bill making its way through Parliament. The draft law, which underpins the UK's post-Brexit approach to financial regulation, was amended in late October to include future provisions for cryptocurrencies.

The government's ambition to make the UK a global hub has come into sharp focus in recent months as the crypto industry has been embroiled in one crisis after another.

City Minister Andrew Griffith insisted last week that these ambitions remained unchanged despite recent disasters. “Yes, there are questions about the future of crypto – but we would be foolish to ignore the potential of the underlying technology,” he said at an event in Edinburgh.

He said the Financial Services Act would create a framework for regulating cryptoassets and stablecoins and the government would “discuss a world-leading regime for the rest of the cryptoasset market later this year.” Stablecoins are cryptoassets whose value is tied to a highly liquid traditional asset such as the US dollar or the British pound.

“The UK is committed to creating a regulatory environment in which businesses can innovate, while crucially maintaining financial stability and regulatory standards so that people and businesses can use new technologies both reliably and safely,” a Treasury spokesperson told the Financial Times.

“The government has already taken steps to bring certain cryptoasset activities within the scope of UK regulation – and will consult on proposals for a broader regulatory regime.” The UK launched a consultation on crypto regulation in early 2021, primarily focused on stablecoins.

Some government insiders believe the consultation launch timeline could shift to early 2023 due to “fast-moving events” in the crypto industry.

Nikhil Rathi, chief executive of the FCA, told the FT Banking Summit last week that his agency was already “proactive” in areas where it does not yet have powers, including publicly warning about “the risks of investing in crypto, the potential to lose all your money”. “.

He added that 85 percent of firms that applied to be added to the regulator's crypto register failed the FCA's anti-money laundering tests.

The cross-party Treasury Select Committee is in the middle of its inquiry into the influence of cryptocurrency in the UK. On Wednesday she will interview experts from the FCA and the Bank of England about its risks, the case for regulation and the pros and cons of the central bank-issued cryptocurrency, known as a CBDC.

The committee will also hear from an investigative journalist how many football fans have lost out to crypto tokens backed by high-profile players and clubs.

The FCA and BoE declined to comment.

Additional reporting by Owen Walker