16 Feb 2023

FS Policy Explainer | HM Treasury’s Open Consultation; Future regulatory regime for cryptoassets

Following the Government’s commitments set out in April 2022 to develop the UK’s regulatory approach to crytoassets HM Treasury is running its Open Consultation covering the regime’s phased implementation. The aim behind this work is to enhance consumer protection, ensuring cryptoasset promotions are held to equivalent standards as traditional finance – whilst also promoting innovation

What is it?

The proposals seek to deliver on the ambition to place the UK’s financial services sector at the forefront of cryptoasset technology and innovation, creating the conditions for service providers to operate and grow whilst managing risks to consumers. The government’s proposed measures have been driven by recent market events – including the failure of FTX, reinforcing the case for effective regulation and sector engagement. This should promote confidence in the sector, helping it to grow. The Consultation’s central themes can be seen via;

Implementing the Financial Services Markets Bill’s digital assets contents; Including setting out the Future Regulatory Framework’s (FRF) work in setting out the Regime’s policy scope to specific services and products.
Mapping the regime’s outcomes-based approach; Through understanding crytoassets’ relations to pre-existing regulatory remits[1], the Paper seeks to map its top-level expectations to the implementation of the new crypto regime.
Call for Evidence (CfE) covering Decentralised Finance (DeFi), ‘other’ cryptoassets, and sustainability; The CfE covers crytoassets wide reach within the sector[2], including cyptoassets relations to cross-party activity such as clearing services provided by central counter parties. As such, the currencies’ considerations are considerably vast and they will require cross-sectoral and international regulatory considerations, for example the multilateral nature of crypto-mining.

What does it mean for techUK members?

The proposed regime will affect digital tech suppliers within the financial services sector, including AI/ML providers to blockchain’s coding of smart contracts and Custodian Wallet Providers automated transactional processes. Proposed changes will introduce relevant regulatory oversight to providers’ exchange, arranging, and making processes that exist within traditional finance, while also ensuring crytoassets business affairs are overlaid by other policymaking regimes including anti-money laundering and operational resilience.

See here to read HM Treasury’s Open Consultation Paper.

techUK’s upcoming Consultation Work

techUK’s Financial Services Programme will be running its consultation with members, ensuring the interests and business affairs of the digital tech sector are considered within HM Treasury’s developing approach to crytoassets. Please contact the team below with questions/interest in this opportunity.

[1] Intermediation activities/third parties, Trading Venus, and asset custody processes.

[2] Including non-transactional based processes, including post-trade activities (12.4).

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