The U.K. Parliament has passed a new bill that could recognize cryptocurrency as a regulated activity within its jurisdiction.
The Financial Services and Markets Bill (FSMB) gained approval on Monday from the House of Lords, the upper chamber of Parliament, signaling its progression into the final stages before becoming law.
The extensive bill consists of over 340 pages. It was introduced in July last year to capitalize on Brexit’s opportunities and grant regulators greater authority over the U.K. financial system.
As the bill progressed through Parliament, amendments were made to include provisions for treating all cryptocurrencies as regulated activities and establishing measures to oversee crypto promotions. This adds to the original proposal of regulating stablecoins under the country’s payment regulations.
The approval by the House of Lords, following the sanction by the House of Commons in October last year, sets the stage for the bill’s final readings by both chambers. Once both chambers agree on the final provisions, the bill will receive royal assent from King Charles III.
In its efforts to regulate the cryptocurrency industry, the U.K. Treasury recently engaged in public consultation regarding proposed regulations. The aim is to establish a regulated ecosystem that promotes the crypto industry’s growth while safeguarding consumers.
Andrew Griffith, the economic secretary to the U.K. Treasury, said in April that specific cryptocurrency regulations could be implemented within the next year as the country aims to position itself as a “global hub for crypto asset technology.”
Meanwhile, the All-Party Parliamentary Group (APPG) for Crypto and Digital Assets Group also put forth 53 recommendations for crypto regulation, advocating for the appointment of a dedicated official to oversee the regulatory process.
These recommendations cover various aspects, including the U.K.’s approach to crypto regulations, the role of U.K. regulators, central bank digital currencies and risk mitigation concerning consumer protection and economic crimes.
“Following the Government’s announcement of its vision for the U.K. to become a global hub for cryptocurrency, the APPG launched our Inquiry to help identify the issues that policymakers will need to consider moving forward,” said Dr. Lisa Cameron, a member of the cross-party group of MPs and Lords.
“Given the rapid growth of cryptocurrency and digital assets, the timing of this report is vital to protect consumers whilst ensuring the U.K.’s leadership in this sector can be realized.”
All cryptocurrency businesses in the U.K. must register with the Financial Conduct Authority (FCA), the country’s regulatory body overseeing the broader financial services industry. However, the registration process has proven lengthy and inefficient, resulting in many applicants’ approval delays.
While efforts are underway to regulate cryptocurrencies in the U.K., lawmakers have conflicting views. Some cross-party lawmakers argue that cryptocurrency trading should be classified as gambling rather than regulated by the government.
They contend that cryptocurrencies like Bitcoin and Ether lack intrinsic value, exhibit high price volatility and do not contribute to any discernible social good.
FCA implements tighter crypto marketing rules
In a related development, the FCA has also announced plans to implement new cryptocurrency marketing and advertising regulations, effective October 8.
The Treasury had previously introduced a time-limited exemption that allows crypto firms authorized under the FCA’s anti-money laundering regime to issue their promotional materials before the new regulatory regime takes effect.
As the number of cryptocurrency holders in the U.K. has more than doubled in the past year, these proposed rules aim to address potential risks and protect consumers.
According to recently published documents, the regulations will classify cryptocurrencies as “restricted mass market investments” and mandate the inclusion of “clear risk warnings” in all crypto advertisements and promotions. The rules will also prohibit investment incentives such as “refer to a friend” or “new joiner bonuses” schemes.
Another significant requirement will be the introduction of a cooling-off period for new investors, ensuring that consumers cannot send a direct offer financial promotion (DOFP) without a reconfirmation request at least 24 hours later.
Crypto firms will also need to conduct adequate due diligence and provide sufficient evidence of the underlying crypto asset to ensure that their financial promotions are fair, transparent and not misleading.
The regulations propose penalties of up to two years of imprisonment for violating these rules.
Sheldon Mills, the executive director of consumers and competition at the FCA, underscored the importance of providing individuals with the necessary time and appropriate risk warnings to make informed decisions.
“It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision,” he said. “Our rules give people the time and the right risk warnings to make an informed choice.”
A survey conducted by the FCA, which included 2,000 respondents, revealed that 40 percent of participants purchased cryptocurrencies as a form of gambling. Meanwhile, around 30 percent expressed regret over their decision to invest in crypto.
Fostering crypto growth with robust regulations
The U.K.’s efforts to position itself as a favorable destination for crypto firms follow the European Union’s recently finalized Markets in Crypto Assets regulation, which primarily focuses on stablecoins.
Various jurisdictions worldwide, including Dubai and Singapore, have been vying to attract crypto companies by presenting themselves as crypto-friendly locations. The U.S., however, has taken a strict stance on such companies, with regulators ramping up enforcement actions.
“Wherever possible, we want to see the same asset, the same transaction regulated in the same way,” said Griffith. “But there are some additional opportunities in the crypto asset or distributed ledger space, and we want to take advantage of that.”
In February, an official press release published on the government website highlighted the U.K.’s goal of providing better consumer protection and fostering the crypto industry’s growth within a regulated ecosystem.
The new crypto regulations aim to prevent bad actors from entering the market and reduce the risk of money laundering activities within the decentralized and anonymous crypto space.
It also enables the safe flourishing and growth of a new sector, which, in turn, boosts job creation and attracts investment, according to the press release.
Griffith emphasized the government’s commitment to economic growth and technological innovation, including crypto-asset technology, while ensuring consumer protection standards.
“We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes crypto asset technology,” he said. “But, we must also protect consumers who are embracing this new technology – ensuring robust, transparent, and fair standards.”
The U.K. government recognizes the emerging nature of cryptocurrencies and their inherent volatility. Recent high-profile collapses of several companies following FTX’s bankruptcy have exposed vulnerabilities in certain business models prevalent in the industry.
Through its regulatory approach, however, the U.K. seeks to mitigate the risks while harnessing the advantages presented by crypto technologies.