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UK unveils 'world-first' plans to regulate crypto and digital assets

Representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on January 29, 2023. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
The UK government wants to make Britain a 'global hub for crypto-asset technology'. Photo: Jakub Porzycki/NurPhoto via Getty Images (NurPhoto via Getty Images)

The UK government hopes to embrace the technological innovations emanating from the blockchain industry with a new set of plans to regulate digital assets, protect consumers, and make Britain "a global hub for crypto-asset technology".

The Treasury has released proposals for regulating crypto-exchanges, lending activities, and how digital assets are stored, describing crypto assets as having "a range of potential benefits, as well as posing risks to the consumer".

Check: Crypto live prices

However, the statement stressed that the planned regulator framework is not fashioned to curtail ambitions, but there to "enable a new and exciting sector to safely flourish and grow, boosting jobs and investment".

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After the calamitous crypto-crashes of 2022, the UK government's proposals highlight what they see as structural vulnerabilities in some business models in the crypto-sector.

Read more: FTX bankruptcy sees 80,000 UK crypto investors lose funds

The proposed framework will set out tougher rules for crypto trading platforms, but also help to establish "a robust world-first regime, strengthening rules around the lending of crypto-assets".

The Treasury's consultation also seeks views on improving the digital-asset market integrity and boost consumer protection by setting out a proposed "crypto market abuse regime".

The new framework will require crypto trading venues to establish more robust standards for admission, such as more detailed disclosure documents, and strengthen rules for financial intermediaries and custodians to ensure safer transactions and storage of customer's digital assets.

Read more: How crypto fell to earth in 2022: Eight charts that tell the story of a cruel crash

Referring to the announcement from the Treasury, economic secretary to the Treasury Andrew Griffith said: “We remain steadfast in our commitment to grow the economy and enable technological change and innovation, and this includes crypto-asset technology.

“But we must also protect consumers who are embracing this new technology, ensuring robust, transparent and fair standards.”

Read more: Why UK banks are blocking transfers to and from crypto exchanges

The proposals will allow crypto businesses that are registered by the Financial Conduct Authority (FCA), such as Kraken, to issue promotions temporarily while the regulatory regime is being introduced.

However, these crypto-asset promotions will be held to the equivalent standards of promotions of financial services products with similar risk profiles.

The consultation builds on previous UK Treasury proposals, which focused on stablecoins and the financial promotion of crypto-assets.

In April 2022, the then-chancellor Rishi Sunak, who is now prime minister, elaborated on a plan to make the UK “a global crypto asset technology hub”, where alongside the then-economic secretary to the Treasury John Glen he laid out a roadmap for the UK’s crypto future.

This included the development of new legislation for a "financial market infrastructure sandbox" that can aid crypto-firms to innovate.

Read more: Grayscale owner's woes could 'severely impact' crypto markets, report claims

As chancellor, Sunak oversaw a Financial Conduct Authority-led ‘CryptoSprint’ to further encourage the innovation of distributed ledger technology (DLT) within the UK.

Watch: The reasons why UK banks are blocking crypto exchanges | The Crypto Mile