The Treasury consults amid market volatility, with investors uncertain following the collapse of major exchange FTX and Bitcoin’s plummeting value.
By Tom AcresTechnology reporter
The Treasury is responding to widespread demand for action following the crash of a major trading platform, proposing to regulate cryptocurrency.
In a bid to produce a “robust” system in line with traditional finance, the government has proposed more stringent standards for exchanges.
Under the new plans, exchanges are responsible for defining the requirements for a currency to be traded, as well as ensuring safe transactions and protecting customer assets.
This follows The deputy governor of Bank of England’s statement to Sky News that cryptocurrency trading is “too dangerous” to remain unregulated.
Speaking in the wake of the bankruptcy of crypto platform FTX, Sir Jon Cunliffe labelled markets as “incredibly volatile”, suggesting investors needed greater protection.
The collapse of the world’s second largest crypto exchange left 80,000 UK customers in the lurch, with one British investor losing a £1m.
Sam Bankman-Fried, the disgraced founder of FTX, has since pleaded not guilty to charges of theft.
‘Regulate crypto before the systemic problem
Will the government’s plans be enough?
The proposals – which Labour have criticised as too late and too soon – come as the crypto industry attempts to restore confidence in the market.
Since FTX’s downfall, the government has proposed – and is now consulting – on greater regulation. But it remains to be seen if it is enough to bring stability and trust back.
The world’s largest cryptocurrency, Bitcoin, has recently plummeted to its lowest level in five months, resulting in a wider market turmoil. In addition, the major exchange Coinbase has cut 20% of its staff. This comes after Rishi Sunak, the then chancellor, declared last year that he wanted the UK to become a “global crypto asset hub”.
Andrew Griffith, the Economic Secretary to the Treasury, stated that the government intends to enable the crypto market while protecting consumers who embrace the technology. The Treasury will introduce a consultation, and the regulations will come into effect right away, making the UK one of the first countries to regulate the crypto asset market.
The Treasury will also grant a temporary exemption to allow crypto asset companies to issue promotions after a crackdown on misguiding ads. The newly introduced regulations will permit Financial Conduct Authority-registered firms to apply anti-money laundering provisions.
Crypto fraud expert Louise Abbott, partner at Keystone Law, welcomed the Treasury’s announcement. She remarked that the lack of regulations has made it a target for scammers and that she receives daily inquiries from potential victims of crypto scams. Abbott expects the regulation to be in place by the end of the summer, which will provide protection for investors and exchanges.
The largest crypto exchange, Binance, was prohibited in the UK this year. In response to the Treasury’s announcement, the exchange expressed its enthusiasm and stated that the regulation was “essential to establishing trust”. Varun Paul, ex-head of fintech at The Bank of England, echoed the statement and added that clear rules were needed to provide support in the midst of industry turmoil. He confirmed that regulation in the UK would encourage innovation.
