Britain Sets to Regulate the Crypto after FTX Collapse

[TL; DR]

Britain announced its intention to introduce comprehensive cryptocurrency regulation.

The collapse of FTX is the primary reason why the United Kingdom plans to create crypto legislation.

Britain may introduce crypto-friendly legislation since its Prime Minister Rishi Sunak believes that cryptocurrencies and other digital assets have a key role to play in the development of the country.

UK’s crypto regulation is likely to cover aspects such as lending, advertisement, stablecoins, trading venues and disclosure of suitable documents.

Introduction

There are many countries that aim to use the blockchain technology and products to support their growing economies. This is because crypto assets have the potential to support the global financial remittance . Despite their high price volatility, cryptocurrencies are part of an emerging asset class which is popular among the younger generation.

However, lack of regulation has resulted in malpractices in the sector. To this effect, many countries, including Britain, are set to introduce laws that govern such digital assets. Already, the UK has officially created a plan to regulate the cryptocurrency industry to curb some reckless business practices that emerged during 2022 which contributed to the demise of FTX.

Britain to introduce cryptocurrency regulations- Coinpedia

Why does the UK aim to regulate the cryptocurrency industry?

Britain has crafted a plan to introduce UK crypto regulation with the main intention of protecting consumers from malpractices taking place in the sector. The introduction of crypto regulation in Britain and other countries, including the United States, will provide clarity to crypto users in these countries. This is likely to increase the adoption of cryptocurrencies by risk-averse investors.

The country intends to create an agency that will authorize crypto organizations operating in the United Kingdom or willing to serve its citizens. Britain’s approach to the crypto regulation emanates from the high level of volatility of cryptocurrencies, some structural vulnerability of some crypto business models and recent failures such as the collapse of FTX.

UK response to FTX collapse is reasonable and is in line with its judicial responsibility since millions of people, including its residents, lost billions of dollars due to that crypto mishap. Notably, the implosion of FTX came as a clear reminder to many governments to introduce proper legislation that governs the sector.

The sad reality about the crypto sector is that the collapse of one large crypto venture has ripple effects in the entire industry, affecting individual investors and institutions. For instance, the implosion of FTX led to the collapse of other crypto organizations such as BlockFi and Genesis lending platform.

That said, we can summarize the focus of crypto regulation in Britain using the words of Economic Secretary to the Treasury, Andrew Griffith. He said, ““We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology.

“But we must also protect consumers who are embracing this new technology - ensuring robust, transparent, and fair standards.”

The collapse of FTX acted as a catalyst for Britain to introduce crypto laws- Theguardian

The proposed framework of crypto regulation in Britain

In a general sense, the UK crypto industry oversight will focus on various key areas such as lending, advertisement, disclosure of key documents and role of intermediaries in the sector.

Intermediaries: Part of the regulation targets intermediaries and other custodians which store digital assets.

Lending: The UK government intends to craft clear legislation that governs crypto lending institutions and services. Currently, there are many platforms that offer risky loans to the general public. To curb the risks that exist in the decentralized lending sector, Britain will craft strict regulations to protect consumers and strengthen the operational resilience of the lending firms.

In addition, all lending institutions will be required to have enough financial resources and clear contractual terms which will ensure that they will not collapse the way BlockFi, Celsius Network and Voyager Digital did.

Disclosure of documents: The other focus of the legislation is to enhance transparency on the part of exchanges and other DeFi players. For example, crypto exchanges will be required to disclose some important documents which will help the public to make informed investment decisions. The government will also set out stringent and clear terms for trading digital assets.

Advertisements: One area where the UK government will introduce a piece of legislation is on promotion of crypto assets and related activities. In January 2022, Britain promised to crackdown on misleading crypto advertisements with the aim of protecting the consumers.

However, in its recent announcement the UK government has allowed crypto companies, registered with the FCA for anti-money laundering purposes, to flight their crypto advertisements until the proposed regulations are passed and implemented.

Read also: The SEC took action against Kim Kardashian for endorsing Ethereum max EMAX

Registration of crypto companies: Also, the government will require all crypto companies that wish to operate in the country to register and follow the regulations which the Financial Conduct Authority sets. They should also abide by the country’s anti-financial crime rules.

Other pieces of legislation: We have not covered all the aspects which Britain plans to include in its regulation. For example, the regulation will also cover trading of digital assets and stablecoins, among others.

The reason why the United Kingdom will create crypto-friendly legislation

Since the inception of Bitcoin in 2009 and the later proliferation of digital assets many people have feared the introduction of unfriendly crypto legislation. However, that should not be a concern of UK citizens because their Prime Minister, Rishi Sunak, is a cryptocurrency- friendly leader.

Sunak showed his interest in cryptocurrencies when he was still the Finance Minister in 2022. For example, in April of that year the government announced its intention to make the United Kingdom a hub of cryptocurrencies. Furthermore, Sunak lobbied for the introduction of proper legislation on cryptocurrencies and other digital assets. This is because he believed that friendly crypto regulations would attract investors in the country.

Rishi Sunak, UK’s Prime Minister- Independentcouk

Earlier than that, in 2021 Sunak called for the government to introduce a central bank digital currency (CBDC), which would be named Britcoin. Thus, Sunak’s background in finance, investment and cryptocurrency gives us a clue on Britain’s stance on crypto industry regulation.

Conclusion

The FTX incident and UK crypto regulation are closely connected. This is because the implosion of FTX acted as a catalyst to the proposed cryptocurrency legislation in the UK. In all, the primary goal of Britain’s crypto regulation is to protect the consumers and attract sustainable investment in the sector.