The UK has to get its crypto house in order | Opinion

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As a seasoned crypto investor with over a decade of experience navigating the volatile and ever-evolving landscape of digital assets, I’ve witnessed firsthand the importance of regulatory clarity and certainty for the growth and development of this industry. The UK, with its ambitious goals to become a digital asset hub, finds itself at a critical juncture in this race.

For countries like the United Kingdom that wish to expand their digital asset sectors, it’s essential to establish a regulatory system that fosters growth yet maintains investor protections, especially for retail investors. Crafting such a system requires thoughtful planning and time from regulators, but no nation can ignore the need for progress – especially when the future of the American market remains uncertain.

Given its status as the world’s leading economy, it’s not surprising that the United States plays a crucial role, if not the most significant one, in the cryptocurrency market. Approximately 93 million American adults are reported to own cryptocurrencies already, with many expressing interest in expanding their digital assets. However, the regulatory environment within the U.S. is currently complex and varies across different regions.

In part, this situation mirrors a federal structure, with complexities involved when trying to pass new laws in such a contentious political arena. Moreover, it demonstrates significant divergence among regulatory bodies and judicial systems regarding the interpretation of existing statutes and regulations. The SEC and CFTC have managed successful enforcement actions in this area, but the SEC has encountered resistance from the courts, especially themselves.

Despite initially being critical of digital assets, newly elected president Donald Trump now appears to be passionately committed to demonstrating that there’s no fervor stronger than a convert’s zeal. He has vowed to transform the United States into a global leader in Bitcoin (BTC) and recently has been actively advocating for cryptocurrency on social media platforms.

Is the UK at a standstill?

After Donald Trump resumed his position in the Oval Office, there’s a likelihood that cryptocurrency ventures may encounter more favorable treatment within the U.S. In fact, Bitcoin surged to an unprecedented peak of $75,060 following Trump’s victory and his pledge to cease the sector’s perceived oppression. This development should prompt UK regulators and government officials to swiftly implement the regulatory framework for cryptocurrencies that was proposed at the start of the year, turning it into a tangible set of rules.

From my perspective as an analyst, the European Union (EU) serves as a compelling example of the advantages that regulatory clarity can bring. While there are valid points to be made about certain aspects of the Markets in Crypto-Assets Regulation, these criticisms pale in comparison to the significant benefits derived from having a clear regulatory framework.

It’s understandable for market players to question the UK’s actions due to the current uncertainty. This ambiguity could potentially hinder the UK’s aim to become a significant player in the digital assets sector. Moreover, it may leave users of stablecoins without the regulatory protection they would normally anticipate. If the UK doesn’t act to improve its regulatory framework following Trump’s presidency win, realizing these ambitions could prove even more challenging.

Regulatory progress

It should be noted that there are positive aspects to the UK’s current regulatory landscape, with the FCA deserving credit for its practical approach to enforcing its rules. There are also a number of steps that the UK can take in the short term to help address these issues.

It’s crucial that the UK finalizes and implements a well-considered system for fiat-backed stablecoins promptly. The consultations have indicated a thorough plan, but there seems to be some ambiguity and confusion in the Treasury document regarding the jurisdictional reach of this system. This is concerning, and it’s hoped that the Treasury will clarify the jurisdiction of regulation in line with current regulations to avoid any potential losses of benefits that could arise from establishing the system within the existing financial services framework.

It’s important for the UK to have enough personnel in the Financial Conduct Authority (FCA) dedicated to reviewing cryptocurrency approvals. This would help reduce the extensive delays that businesses are currently experiencing. As regulatory scope expands, this is particularly crucial. This year, data showed an average wait of 459 days for a crypto firm’s Anti-Money Laundering (AML) registration—this is far too lengthy. While additional staffing may not solve all issues, it could significantly improve the situation.

As a researcher, I find myself pondering the UK’s next move regarding Central Bank Digital Currencies (CBDC). Although stablecoins have gained significant traction in the digital realm, it seems that the progress made by the UK banking sector towards tokenized deposits has been relatively minimal. This leads me to question whether the uncertainty surrounding the Bank of England’s potential launch of a CBDC is causing a delay. It is crucial for the success of UK plc that the Bank of England and banks do not wait on each other to act.

The right form of regulation

The field of digital assets represents a cutting-edge aspect of finance. Given how rapidly technology advances, regulators must stay ahead to keep up. While the UK has proposed a reasonable plan, it needs to speed up its execution or risk falling behind other regions in this fast-paced environment.

As an analyst, I’m advocating for a thoughtful and sustained approach towards implementing regulations rather than rushing it, given the roadmap we’ve already established for the UK market. Regulations play a crucial part in safeguarding retail consumers, but they must also provide room for innovation, especially within wholesale markets where more advanced players can effectively manage risks. Achieving this balance might not be instantaneous, but that doesn’t mean we should abandon our efforts. Instead, it calls for persistent dedication and careful planning to strike the right equilibrium between protection and progress.

In simpler terms, the United Kingdom (UK) remains attractive for investors in digital assets due to the emergence of a balanced and appropriate regulatory system. However, it’s crucial to act swiftly as delay could lead to more delays. It’s important to note that other countries won’t pause for the UK to match their pace. Thus, crafting and implementing a thorough regulatory structure for digital assets should be a prime focus for both the government and regulatory bodies. Failing to do so might result in the UK falling behind the competition.

Brett Hillis

Brett Hillis serves as a partner and is part of On Chain, Reed Smith’s specialized team focusing on cryptocurrency and digital assets. His work encompasses designing tokenization frameworks, navigating regulatory complexities, creating digital asset derivatives, and shaping Exchange-Traded Notes (ETNs) and investment products linked to digital assets.

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2024-11-13 14:43