Changes to crypto regulation on the horizon

Nov 7, 2022 1:09:12 PM

What has happened?

On 20 July 2022, the Financial Services and Markets Bill was introduced into Parliament. As the Bill is discussed by Parliament, there have recently been some developments in relation to the possible future regulation of cryptocurrencies.

What are the key points?

The original version of the Bill brought activities facilitating the use of certain stablecoins within the regulatory perimeter, where they are used as a means of payment. The Bill confirms that this will be done primarily via amendments to the existing electronic money and payment system regulatory frameworks. The Bill introduces a definition of ‘digital settlement asset’ and gives HM Treasury a power to amend the definition to ensure it keeps pace with developments.

On 25th October 2022, the Bill was discussed in the House of Commons and the Financial Secretary to the Treasury, Andrew Griffith, stated that “cryptoassets and blockchain could have a profound impact across all forms of the financial services sector”. Mr Griffith then referred to the Government’s recent work in this area and stated:

“Following engagement with industry, the Government recognise the need to move ahead with regulating a broader set of crypto activities beyond stablecoins; that includes activities relating to the trading and investment of cryptoassets such as Bitcoin and Ethereum. Through the Bill, we want to ensure that HM Treasury has the necessary powers to deliver that. The Government believe that creating an effective comprehensive regulatory framework for cryptoassets has the potential to unlock innovation in the UK’s crypto sector and to boost growth.”

An amendment to the Bill has been proposed that will bring cryptoassets, as defined below, within the scope of the Financial Services and Markets Act 2000. If implemented, this would lead to a significant change in the regulation of cryptoassets in the UK.

The Bill proposes adding the following new definition of a “cryptoasset” to FSMA:

“cryptoasset” means any cryptographically secured digital representation of value or contractual rights that
(a) can be transferred, stored or traded electronically, and
(b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology)”

The above definition is wider than the current definition of a “cryptoasset” that falls within the UK anti-money laundering regime. This is because the new FSMA definition refers to technology that may include distributed ledger technology but is not required to do so, whereas the anti-money laundering definition only applies to distributed ledger technology.

Firms that are, for example, providing investment advice, arranging deals or providing custody services in relation to cryptoassets are likely to need to be authorised by the FCA under FSMA. In relation to firms that may already be registered with the FCA under the anti-money laundering regime, this would be a separate application process as it involves a separate authorisation.

There is no indication of when the Bill will complete its passage through both Houses of Parliament. The Government is, however, committed to consulting on the issue before the end of the year.

How can we help you?

If you’d like to know more about how we can help you with your cryptoasset arrangements, or any other regulatory compliance issues, our expert team is here to help.

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