The UK Crypto Regulation has been published by the government.

Key Points:

• The UK crypto regulation is one step closer to becoming law with the government’s announcement of its final proposals today.
• The UK crypto regulations will initially focus on stablecoins but will later expand to cover other areas, such as algorithmic stablecoins and lending and trading.
• The UK crypto regulations will be overseen by the Financial Conduct Authority (FCA).

The UK government has announced its final regulations for the cryptocurrency industry, aligning with the goal of establishing the UK as a leading hub for crypto-assets.

New UK Crypto Regulation Aim to Integrate Crypto into Traditional Financial Services

These regulations initially focus on stablecoins and will later expand to cover algorithmic stablecoins and other areas. The objective is to subject activities such as lending and trading to traditional financial regulations overseen by the Financial Conduct Authority (FCA). Treasury Minister Andrew Griffith expressed satisfaction in presenting the final proposals, highlighting that they position the UK as the preferred choice for crypto businesses.

The groundwork for the UK crypto regulations was laid earlier this year, with a cryptocurrency consultation in February and the passing of the Financial Services and Markets Act 2023 in June. This legal framework treats cryptocurrencies as regulated financial activities. The government aims to integrate cryptocurrencies into traditional financial services regulation and clarify the treatment of cryptocurrency assets, including non-fungible tokens (NFTs). While crypto assets already classified as specified investments and regulated as traditional securities will not be affected, NFTs primarily used as exchange tokens, especially those released in large quantities with minimal price variations, may fall under future financial services regulations.

FCA to Establish Equivalence Measures for Overseas Crypto Firms

The FCA is expected to consult on an authorization regime for cryptocurrency companies and establish equivalence measures for overseas firms. Overseas-regulated trading venues can seek authorization for their UK branches based on criteria set by the FCA. The current plan does not include regulating decentralized finance (DeFi), and further evaluation is required.

Stablecoins backed by fiat currency will be subject to existing financial services regulations, with additional rules to ensure the secure operation of digital payment systems. The central bank has initiated a consultation process for a regulatory framework for systemic stablecoins.

However, concerns and controversies exist regarding applying traditional financial service regulations to cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). Some suggest it could create a false sense of security for users. The government has resisted categorizing cryptocurrency as a form of gambling. Within the industry, there have been complaints about delays and inadequate feedback from the FCA, leading certain firms to discontinue their services in the UK.

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