British government is not planning any changes to the legal framework for crypto-assets, although crypto could lead to improvements

British government is not planning any changes to the legal framework for crypto-assets, although crypto could lead to improvements

The British government does not plan to make changes to the existing legal framework regarding cryptocurrencies and unsecured crypto assets. This emerges from a consultation paper from the Ministry of Finance published today. Instead, the government would like to introduce the digital securities sandbox (DSS) to create a more flexible regulatory environment for digital securities.

The DSS initiative aims to regulate both native digital securities and tokenized representations of existing securities. However, unsecured crypto-assets such as Bitcoin and Ethereum are excluded from this regulation. The Ministry of Finance sees these assets as an investment type, which is closely connected to the distributed Ledger technology (DLT). Exchange tokens also belong to this category.

The Ministry of Finance indicates that the regulatory landscape is still developing in both the UK and worldwide. As long as there is no sufficient security in the existing framework, the government wants to use existing regulatory initiatives to develop guidelines and regulations for this asset class.

The same approach is also applied on derivatives in which the underlying assets refer to securities. The DSS focuses primarily on regulating activities that are connected to securities.

Although unsecured cryptocurrencies are excluded from the DSS, the Ministry of Finance is of the opinion that the introduction of digital assets could still lead to far -reaching changes in the financial markets. Digital bonds, stocks and digital versions of assets such as money market instruments are to be regulated more flexibly as part of the DSS. The planned loosening of legislation is expected to take up to five years and can be extended by the Ministry of Finance.

The Financial Services and Markets Act 2023 should lay the basis for the development of the blockchain sector and facilitate the introduction of new technologies such as blockchain in the financial markets.

In addition, the law defines crypto-assets as cryptographically secured digital presentation of values or contractual rights. Crypto trade is recognized as regulated financial activity.

These messages come in parallel to the announcement of the British Financial Conduct Authority (FCA) that companies that apply for cryptocurrencies for British customers must adhere to the existing financial funding regulations by October 8, 2023.

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