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UK Releases Digital Asset Consultation Results

Regulation | Oct 30, 2023

HM Treasury digital asset consultation participants - UK Releases Digital Asset Consultation Results

Image: HM Treasury Report on Crypto Asset Regulation Oct 2023

UK Government's Cryptoasset Consultation Reveals Strong Support for Clear, Phased, and Balanced Regulatory Framework

The UK government has confirmed its intention to legislate the first set of rules to regulate the crypto sector, requiring market participants to be authorized before offering services to consumers.  This move is in line with global trends, as the European Union has already started implementing comprehensive rules for cryptoasset markets. The UK's finance ministry is drawing lessons from the FTX collapse, focusing on cryptoassets and the underlying distributed ledger technology (DLT) to enhance the settlement of securities.

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Acknowledging the distinct nature of cryptoassets, the UK is dedicated to developing bespoke rules tailored to the specific risks and opportunities presented by digital currencies. The proposed regulations will cover a wide range of activities, including trading, investments, and custody of cryptoassets. The government has actively sought input from various stakeholders through a public consultation, ensuring a well-informed and balanced regulatory framework.

Prominent Consultation Result Themes

  • The government received 131 responses from a wide range of stakeholders, including crypto native firms, traditional financial services firms, industry associations, legal and consulting firms, consumer groups, and members of the public or academia. The feedback was mostly supportive, with 79% of respondents showing support for the government’s overall approach.
  • Respondents called for clearer definitions and treatment of Non-Fungible Tokens (NFTs), utility tokens, and security tokens, emphasizing the need to distinguish between financial services use cases and other applications.
  • There were concerns about the treatment of overseas firms and the applicability of existing exemptions, highlighting the need for clarity on market access policies.
  • Stakeholders requested a more detailed delineation between phase 1 and phase 2 activities, and suggested a phased approach to implementation, particularly for market abuse surveillance obligations.

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  • The feedback underscored the importance of distinguishing between services provided to professional versus retail consumers, and called for measures to minimize barriers to entry for smaller firms.
  • Respondents highlighted the need for effective cross-border enforcement mechanisms and international coordination, and urged caution in regulating Decentralised Finance (DeFi) to avoid pre-empting international efforts.
  • Stakeholders emphasized the importance of fostering innovation and ensuring the regulatory framework reflects the unique risks and opportunities associated with cryptoassets, including considerations for sustainability.

Overall, the feedback reflects a desire for a balanced, clear, and phased regulatory approach that supports innovation while ensuring consumer protection and market integrity.

Download the 94 page PDF consultation results report --> here

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