In July of 2022, the Financial Services and Markets Bill was introduced to UK Parliament. The Bill covers a wide range of topics scoping financial services, including cryptocurrency. The Bill proposes many interesting developments in respect of cryptoassets and the regulation of this space is the main topic of debate. The original Bill brings activities facilitating the use of certain stablecoins within the regulatory perimeter, where they are used as a means of payment; primarily by amending the existing electronic-money and payment services regulatory framework. This puts in place a regime that allows for the clear identification of the applicable regulatory requirements where a payment system using digital settlement assets or service provider is recognised as being systemic by HMT. Importantly, the Bill introduces a definition of ‘digital settlement asset’, and also gives HMT the power to amend the definition to ensure that it is able to keep pace with developments.
Financial Secretary to the Treasury, Andrew Griffith, has stated ‘cryptoassets and blockchain could have a profound impact across all forms of the financial services sector… Following engagement with industry, the Government recognise the need to move ahead with regulating a broader set of crypto activities beyond stablecoins; that includes activities relating to the trading and investment of cryptoassets such as Bitcoin and Ethereum. Through the Bill, we want to ensure that HM Treasury has the necessary powers to deliver that. The Government believe that creating an effective comprehensive regulatory framework for cryptoassets has the potential to unlock innovation in the UK’s crypto sector and to boost growth’.
Amendments to the Bill have been proposed which will see cryptoassets fall within the scope of the Financial Services and Markets Act 2000 (‘FSMA’)This means that cryptoassets will be more aligned with more traditional securities in terms of the way they are regulated. If this is implemented, it will lead to a significant shift in the way cryptoassets are regulated in the UK. The Bill proposes adding a new definition of ‘cryptoasset’ to FSMA which is wider than the current definition of ‘cryptoasset’ that falls within the UK anti-money laundering regime (any cryptographically secured digital representation of value or contractual rights that (a) can be transferred, stored or traded electronically, and (b) that uses a form of distributed ledger technology and can be transferred, stored or traded electronically). The proposed new definition, under (b) refers to ‘technology supporting the recording or storage of data (which may include distributed ledger technology)’ which suggests that while the technology used may be distributed ledger technology (‘DLT’), the technology is not required to use a form of DLT in order to meet the definition of a cryptoasset. This could see firms that provide investment advice, arranging deals or providing custody services (all in relation to cryptoassets) having to seek approval from the FCA to carry out their activities; even firms currently registered under the anti-money laundering regime to provide cryptoasset services, will have to submit a separate application to be authorised by the FCA under FSMA.
For now, firms have some time on their hands before the amendments come into effect. However, firms that are involved in crypto assets should be actively tracking these developments closely, in order to realise the extent of their application and the steps they may need to take.
