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Since the implosion of ‘futures exchange’ better known as FTX, the world has once again shifted its focus to the regulation of cryptoassets. Regulations are being introduced to extend consumer protection and to make the UK a global hub for the crypto industry.  

What are cryptoassets? 

Invented in 2008, cryptoassets secure digital representation of value, of which cryptographic techniques (computer code) generate blocks of information. cryptoassets can be transferred or stored electronically, in a wallet that operates using distributed ledger technology, such as the blockchain. The definition of ‘cryptoassets’ is currently found within the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR), under which cryptoassets businesses must comply with the regulations.  

In January 2020, regulatory powers were introduced to allow the Financial Conduct Authority (FCA) to supervise cryptoassets. In order to operate, cryptoasset businesses became required to register with the FCA to carry on providing their service, while those marketing cryptoassets are obliged to follow guidelines set out by the Advertising Standards Authority. In practice, this means that advertisers must state that cryptoassets aren’t regulated by the FCA and aren’t covered under the Financial Services Compensation Scheme. This is due to the volatile nature of the crypto market, and as a result, can lead to crypto traders losing their assets quickly. 

The Economic Crime and Corporate Transparency Bill 

Turning to the next option for ensuring the safe trading of cryptoassets, the Economic Crime and Corporate Transparency Bill entered its second reading on 25 November 2022. The bill was introduced to Parliament on 22 September 2022, with the aim to strengthen the UK’s fight against economic crime. It’ll extend powers to seize and recover cryptoassets that are suspected proceeds of crime. If approved, the bill would also amend powers given under the Proceeds of Crime Act 2002 (parts two to four), including creating pre-arrest powers to seize cryptoassets.  

Financial Services and Markets Act 2000 

On 4 November 2022, an amendment to the Financial Services and Markets Act 2000, called the revised Financial Services and Markets Bill was proposed by Financial Secretary Andrew Griffith. According to the bill, the 'new clause would amend section 417 of the Financial Services and Markets Act 2000 (FSMA 2000) to include a definition of “cryptoasset”. The definition would be “any cryptographically secured digital representation of value or contractual rights that—

(a) can be transferred, stored or traded electronically, and

(b) that uses technology supporting the recording or storage of data (which

may include distributed ledger technology).’

In the original draft, this bill only gave powers to regulate stablecoins but has now expanded due to this amendment. Although the Financial Services and Markets Bill does not itself set crypto regulation, the aim of the amendment will be to introduce a new clause that clarifies powers relating to the financial promotion and regulated activities of cryptoassets. The draft bill has also proposed amending the definition and broadening it to include other digital assets such as non-fungible tokens.  

What's next? 

The proposals passing the committee stage in parliament are the first step towards improving the protection of cryptoassets, crypto businesses, and crypto traders. Both proposals will need to be read and debated in the House of Commons before they’re then moved to the House of Lords for royal assent. For now, the UK government will continue to consult on regulating the crypto ecosystem as it evolves. One thing is for sure, cryptoassets are the future of the financial industry and the proposition of regulations to keep up with their growth is welcomed to bolster protection for crypto businesses and their consumers.