In February 2023, the U.K. Treasury Department released a consultation paper and a call for evidence on its proposed crypto asset regulatory framework. The response deadline has recently passed, and some big names in the crypto industry voiced their opinions on the matter.
Among those who responded were blockchain provider Polygon, venture capital firm Andreessen Horowitz (a16z), the Association of Financial Markets of Europe and the Digital Pound Foundation. While each organization has its own specific concerns, several common themes emerged.
One of the core principles of the U.K.’s proposed framework is “same risk, same regulatory outcome,” which was broadly welcomed by the industry players. However, there was no uniform understanding of what that meant, aside from its foundation in the Financial Services and Markets Act of 2000.
Andreessen Horowitz pointed out the weaknesses in the U.S. Securities and Exchange Commission’s reliance on the Howey test when evaluating the U.K. proposal, noting that the Treasury’s interpretation of the principle acknowledges that it may not always be appropriate to apply the same form of regulation to achieve the same regulatory outcome.
“It is encouraging that Treasury’s interpretation of this principle recognizes that it does not mean that it is appropriate to apply exactly the same form of regulation in all cases to achieve the same regulatory result.”
Andreessen Horowitz, venture capital company
This sentiment further echoes the concern that the paper emphasizes regulating activities rather than assets.
One of the leading platforms in the crypto space, Polygon, underlined that the source of risk in DeFi systems is significantly different from that in centralized systems such as CeFi or the traditional financial system.
Therefore, it may be more accurate to update “same risk, same regulatory outcome” to “different source of risk, same regulatory outcome,” as it fits the operation of most blockchain systems.
Regulatory concerns
The proposed framework also treats fiat-backed stablecoins and algorithmic stablecoins differently, classifying algorithmic stablecoins as an “unbacked crypto asset.” Polygon favored the activity-based regulatory approach in this case.
Meanwhile, the Association for Financial Markets in Europe (AFME), which worked with consulting firm Clifford Chance also weighs in on the released paper.
AFME emphasized the significance of a worldwide classification system for digital assets to enable effective global oversight and stressed the need to concentrate on measures that exclude blockchain-based tokens used for loyalty and rewards programs.
They also noted the territorial scope of the proposed crypto regulations, which apply to businesses that provide services to U.K. citizens and are broader than traditional asset regulations.
The Digital Pound Foundation (DPF) noted possible deviations from the “same risk, same regulatory outcome” principle in treating various forms of crypto assets and commented on them in detail, including the classification of stablecoins, which the organization believed required clarification.
The U.K. government will take into account all the collected responses it receives to its paper while giving room for further consultations regarding specific rules for their next step if they are accepted.
It will consider the responses and critiques from all the concerned parties as the regulatory framework takes shape in the coming months.
