UK Issues Crypto Framework for ICOs, Stablecoins, Exchanges and Regulators
The report covers crucial aspects of crypto regulation, aiming to foster growth in the sector with a clear understanding of the risks involved in digital assets.
The United Kingdom issued their well-awaited regulatory framework for crypto regulation on Wednesday, 1st February 2023, drafting the administration’s choice of the regulator to supervise the industry, covering careful guidance on stablecoin type, rules for ICOs, exchanges, custody, and other critical regulations for digital assets.
“Our objective is to establish a proportionate, clear regulatory framework which enables firms to innovate at pace while maintaining financial stability and clear regulatory standards,” wrote Andrew Griffith, Economic Secretary to the Treasury.
“This includes a proposal to bring centralised crypto asset exchanges into financial services regulation for the first time, as well as other core activities like custody and lending.”
The regulatory framework summarised in the report seeks to accomplish four overarching policy goals: Foster growth, innovation, and competition in the UK; enable consumers to make well-informed decisions with a clear understanding of the risks involved; protect UK financial stability; protect the UK market integrity.
The Treasury said the framework also adheres to a set of core design principles:
“Same risk, same regulatory outcome,” meaning the government will remain “technology agnostic” when determining whether digital assets increase or mitigate risks, “but the aim is to achieve the same or a very similar regulatory outcome” whenever possible.
“Proportionate and focused,” meaning they will focus attention on “where the risks and opportunities are most urgent or acute” and will do their best to avoid “disproportionate or overly burdensome regulation” to crypto entities.
“Agile and flexible,” meaning any regulation should “accommodate evolving markets and products” and should “enable regulators to adapt to changes in the market and developments in international standards.” The regulatory framework is also planned to be “consistent” with the Future Regulatory Framework (FRF) to be launched by the Financial Services and Markets Bill 2022 (FS&M Bill). It should also be harmonised with regulations in other jurisdictions.
The essential legislative method will be to place the financial services regulation of crypto assets “within the regulatory framework established by the UK’s Financial Services and Markets Act 2000 (FSMA), taking advantage of the confidence, credibility and regulatory clarity that this existing system affords, and as it is intended to be updated by the FS&M Bill.”
The report stated that “developing a fully bespoke regime outside of the FSMA framework was also considered,” but they chose against it as this would create a “level playing field” between crypto and traditional financial services firms, would infringe the “same risk, same regulatory outcome” principle, and would likely make “overlapping regulatory regimes and confusion for market participants.”
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