In 2022, the UK Government announced its vision for the UK to become a global hub for the crypto and digital assets industries. Since then, it has introduced legislation that will support the use of one type of cryptocurrency, backed by stablecoins, as a form of payment. In February 2023 it launched a
consultation to develop a new regulatory regime for the crypto sector.
As in much of the world, the Bank of England and the Financial Conduct Authority (FCA) had until recently tended to play down the risk to established systems, while cautiously welcoming the innovation that the new technology offers. Early regulatory responses focused on highlighting risks to consumers, registering crypto businesses in line with money laundering regulations and clarifying and updating tax arrangements relating to crypto assets.
In 2021, the Kalifa Review of Fintech argued that the UK could become “a leading global centre” for the crypto and digital assets industry. The Government built on that vision in 2022 and since then has announced a range of initiatives that will support the growth of the industry, while continuing to protect consumers.
These include regulating certain stablecoins to allow them to become a “recognised form of payment” through the Financial Services and Markets Bill 2022-23, giving the FCA more power to regulate the way that crypto assets and crypto businesses are promoted.
Amid these discussions and considerations in a meeting of the U.K. Parliament’s House of Lords on July 4, lawmakers conducted a third reading of the Economic Crime and Corporate Transparency Bill, legislation introduced in September 2022 as part of efforts to streamline law enforcement’s authority to crack down on crypto-related financial crime.
Members of the House of Lords did not seem to propose any changes related to crypto enforcement in the bill’s most recent reading, characterizing recommendations as “minor” or “tidying up” amendments.
An earlier version of the bill included provisions amending existing frameworks to allow authorities greater flexibility in the confiscation and civil recovery of crypto assets. In addition, the legislation clarified the government’s authority over digital assets “intended to be used for terrorism” or related reasons.
In February 2023 the Government of the UK launched a consultation on a new and wider regulatory regime for crypto assets that would, among other things, require crypto businesses to, be authorized by the FCA, conduct due diligence on any crypto asset that they trade in and built-in safeguards for consumers develop a shared understanding of what constitutes market abuse and systems for identifying and disrupting it.
UK regulators also work closely with international agencies, particularly the Financial Action Task Force and the Financial Stability Board to coordinate and strengthen international policy relating to crypto assets.
Most UK policy and regulatory responses to cryptocurrencies have emerged since 2018. Since then, they have developed based on a desire to balance risks to consumers and the financial system against the possibilities for innovation. UK policy has been informed by increased knowledge and understanding of the issues involved, as well as developments within the sector itself.
UK policy initially focused on determining the broad priorities and responsibilities for intervention. More recently it has emphasized a desire to apply “proportionate” and “flexible” regulation. This intends not only to protect consumers and businesses but also to promote the UK’s financial services industry.