UK Develops Regulatory Framework Together with Crypto Industry!
Cryptocurrency regulation is a hotly debated topic around the world, and the United Kingdom is no exception. The UK’s financial watchdog, recently made news when it declared its intention to work with crypto businesses to create a regulatory framework for the sector.
Besides, the UK Treasury recently solicited comments on its proposed crypto asset regulatory framework, receiving detailed responses from a wide range of cryptocurrency industry participants.
The Financial Conduct Authority (FCA), Digital Pound Foundation (DPF), Andreessen Horowitz (a16z), Polygon Labs, and the Association for Financial Markets in Europe (AFME) were among those that responded to the survey and provided their views on the framework.
In this blog, we will analyze the key takeaways from their comments, as well as the FCA’s approach to crypto legislation, among other things.
Same Risk & Same Regulatory Effects!
The UK’s HM Treasury request for the same risk and the same regulatory effects was strongly supported. Aside from its foundation in the Financial Services and Markets Act of 2000, there was no shared understanding of what that entailed.
Andreessen Horowitz (a16z) brought out weaknesses in the US Securities and Exchange Commission’s reliance on the Howey test when the firm evaluated the UK proposal.
Andreessen Horowitz responded that it is reassuring to understand this view by Treasury that it may not be appropriate to apply the same regulation in all circumstances to achieve the same regulatory effects.
Differentiating CeFi & DeFi
The suggested framework focused on regulating behaviors rather than assets, emphasizing the fundamental contrasts between centralized finance (CeFi) and decentralized finance (DeFi).
In contrast to centralized systems like CeFi or conventional financial systems, Polygon Labs asserts that DeFi systems have a different source of risk. To that end, updating: the same risk, same regulatory effects for different risk sources, and similar regulatory effects may be more accurate.
Classifying Stablecoins
The suggested paradigm discriminated between fiat-backed and algorithmic stablecoins, classifying the latter as unbacked crypto assets. In this case, Polygon advocated an activity-based regulating approach.
The DPF identified potential departures from the same risk, and same regulatory effects approach in the processing of various types of crypto assets and elaborated on them. The classification of stablecoins is one of the points thought to be clarified in this regard.
Global Taxonomy of Crypto Assets
The AFME underlined the significance of a worldwide taxonomy of crypto assets for efficient international regulation and the identical activities approach to exclude blockchain-based representations of value such as loyalty and rewards programs.
The AFME collaborated with consulting company Clifford Chance on their answer. They further noted that the proposed crypto laws have a wider geographical reach than those governing traditional assets since they are drafted to apply to businesses that offer services to UK citizens.
FCA’s Approach to Crypto Regulations
The Financial Conduct Authority (FCA), the United Kingdom’s financial watchdog, wants to collaborate with crypto industries to develop an industry-specific regulatory framework. At the City Week conference in London, FCA managing director Sarah Pritchard emphasized the importance of cooperation when it comes to cryptocurrency regulations.
The FCA warned cryptocurrency investors a week before the FTX crash in early November, but Pritchard noted that we are always open to innovation, noting that blockchain technology and crypto assets offer opportunities for more effective and sophisticated financial services and products.
Pritchard said the FCA’s duties are limited to ensuring that crypto industries doing business in Britain comply with anti-money laundering (AML) and counter-terrorist financing (CTF) laws.
Pritchard says the FCA has licensed 41 businesses of varying sizes and encouraged crypto startups. However, of the 195 registrations by foreign companies, nearly three-quarters had applications for UK licenses rejected or withdrawn.
Final Words!
After the UK’s crypto regulation, the future of cryptocurrency is still up in the air and will depend on how regulators approach the sector and how the sector reacts to regulation.
Finding a balance between securing end consumers and encouraging innovation will be crucial. The United Kingdom’s crypto regulations may have both positive and bad effects on the business built on cryptocurrencies.
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