The UK is unveiling crypto consultations in quick succession. Shortly after the consultation into whether digital currency promotions fall into the scope of financial services regulation, the HM Treasury announced another consultation to evaluate the regulatory approach to digital assets and stable coins.
This is unsurprising as the Financial Conduct Authority's consumer research demonstrates that consumers are aware of the risks but continue to purchase digital assets as
47% of UK cryptoasset consumers said they bought cryptocurrencies ‘as a gamble that could make or lose money’ and 89% understood that they are not subject to regulatory protections.
The previous consultation by the FCA fell under a measure announced as part of HM Treasury's March 2020 budget to address digital assets and the report is part of a consultation on the broader regulatory approach to digital assets, including the approach to stable coins. The consultation paper sets out the current regulatory landscape, the government's proposed policy approach and specific proposals for digital currency payments.
In collaboration with crypto asset task forces and the HM Treasury three key policy objectives were identified:
Protecting financial stability and market integrity;
Delivering robust consumer protections; and
Promoting competition, innovation and supporting UK competitiveness.
These objectives are to be achieved with the underlying principles that the same risks should yield the same regulatory outcomes and to reflect international discussions with a "future government" approach to financial services and payments regulation.
The regulation proposes a staged approach with a:
priority to ensure that tokens which could be reliably used for retail or wholesale transactions are subject to appropriate regulation.
This means that in the first stage, stable tokens (including tokens where the value linked to single fiat or other assets e.g gold or another currency) will be brought in the scope of upcoming legislative changes but unregulated tokens, including exchange tokens and security tokens generally, will fall into second stage or future regulatory considerations.
The consultation is open until 21 March 2021 with responses to be sent to cryptoasset.consultation@hmtreasury.gov.uk.
The consultation displays the UK's lead in classifying and regulating digital assets.
The clear demarcation between the features of tokens that bring assets into identifiable regulation or recognize where tokens are outside of regulation is supportive and necessary for companies developing products in the digital asset space to plan and attract investment.
The current Fintech and Regtech Senate inquiry underway in Australia has been fielding suggestions for a similar token classification system to be adopted down under, which would be an excellent move for the local industry.
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