UK’s Crypto Plans May Seek to Reverse Regulators’ Actions

The U.K. government on Monday (April 4) unveiled plans to become a “global hub” for the crypto industry. The speech by Economic Secretary to the Treasury John Glen and endorsed by the Chancellor of Exchequer Rishi Sunak, was a positive, emphatic message that the U.K. government will support this new technology, saying the U.K. “is open for business and open for crypto businesses.”

However, this enthusiastic message clashes with some of the recent actions taken by the Financial Conduct Authority (FCA) regarding crypto promotions or registration of crypto exchanges as well as the less optimistic messages coming from the Bank of England.

Glen’s speech praised the potential of crypto assets and the distributed ledger technology and blockchain, but he also acknowledged the risks associated with some of these assets in terms of money laundering or environmental concerns.

While the speech didn’t contain specific legal proposals, Glen advanced a few initiatives that could offer the crypto community a glimpse of what is coming. These could be divided into four areas: stablecoins, a regulatory code, tax adjustments and more engagement with institutions and stakeholders.

First, stablecoins. On Monday, the Treasury announced plans to regulate issuers of stablecoin and bring some of these stablecoins into the payment system. This is the top priority for the government in the crypto space. One proposal is to adapt existing laws that govern electronic money to cover stablecoins and bring them under the remit of the FCA. It is not clear yet which stablecoins will benefit from this new regulation.

Second, a regulatory code. The government is planning to introduce a flexible regulatory framework, similar to a “computer code,” in words of the economic secretary, that can be rewritten and refined if/when needed. The idea of a dynamic regulatory landscape may be appealing for the government, but it would need further explanation as if this will be a voluntary code of conduct or enforceable guidelines that regulators can change from time to time.

Third, tax adjustments. While not many changes are expected in this area, the government may amend the tax code to accommodate crypto and more complex products like decentralized finance (DeFi) loans and staking. One proposal is to remove some disincentives in the Investment Manager Exemption to facilitate U.K. fund managers to include crypto assets in their portfolios.

Fourth, more engagement and collaboration. The government wants to establish regular meetings with the main institutions in charge of regulating or supervising crypto activities, namely, the Bank of England and the FCA. Glen acknowledged that regulators are still learning, and they need to work together to maintain high standards while being flexible. These remarks referred to the FCA’s temporary regime for crypto exchanges to register and operate in the U.K. Crypto companies were not content with the difficulties they face to register with the FCA, to the point that only 33 companies have been able to register before the temporary regime closed last week (except for a few companies still waiting for a resolution).

While the U.K. is attracting a huge number of startups and companies to the U.K. given its pro-innovation approach, the recent moves by the FCA have caused some crypto firms to move their operations to other European countries. Stringer rules on crypto promotions and not being able to register their businesses with the FCA, allegedly because they didn’t meet the anti-money laundering requirements the regulator expected, have been sufficient reasons to deter some companies from continuing their operations in the U.K.

This is probably one of the biggest challenges that the government is facing right now, to convince the crypto community that the U.K. can reverse course and offer a more regulatory friendly environment.

Read more: UK to Propose New Crypto Rules While FCA Closes Registration