Prime Minister Rishi Sunak’s ambitious initiatives to establish the United Kingdom as a crypto hub in 2024 are intricately linked to a sequence of significant dates and regulatory advancements. While the government progresses toward formulating a comprehensive framework for digital assets, individuals in the crypto community, including enthusiasts, investors, exchanges and issuers are eagerly anticipating the unfolding of key milestones that have the potential to influence the trajectory of crypto regulation in the UK.
A Comprehensive Framework for Digital Assets
Sunak’s vision hinges on the completion of the government’s comprehensive framework for digital assets. Industry experts anticipate the rollout of finalized rules for the crypto industry, including regulations for stablecoins. This framework aims to bring various crypto activities – issuance, exchange, investment, custody and lending – under the purview of the Financial Services and Markets Act.
While the primary focus of the framework is on foundational elements like issuance, exchange and investment, it also has implications for emerging sectors within the crypto space, such as crypto gambling. As the regulatory framework becomes more defined, it’s likely that activities related to crypto gambling, including Bitcoin casinos offering blockchain-based casino games and decentralized betting applications will come under scrutiny and be subject to compliance requirements.
Phased Approach and Stablecoin Legislation
The government’s phased plan kicks off with a focus on stablecoin legislation. The Financial Conduct Authority (FCA) is slated to take over custody and oversight of stablecoin issuance. With blueprints already published by the Treasury, FCA and Bank of England, stakeholders have until February 6, 2024 to provide input. Following this, the FCA will create new rules relating to stablecoin, with the Treasury aiming for readiness “by early 2024.” The subsequent phase involves extending regulations to cover crypto exchanges, lenders and other service providers.
Digital Sandbox Innovation
In a bid to foster innovation and experimentation, the Financial Conduct Authority, the Bank of England and the Treasury are set to launch their second digital sandbox by the end of the first quarter of 2024. This sandbox will allow market infrastructure to test a new rule-set for handling digital securities. Unlike the existing digital sandbox, this Digital Securities Sandbox aims to provide larger financial institutions the flexibility to explore new possibilities within a supervised regulatory framework.
The Phased Rollout
The success of Rishi Sunak’s vision depends significantly on the phased rollout of regulations and their impact on various facets of the crypto industry. In 2024, industry observers expect the historic rollout of the government’s final rules for the crypto industry, coupled with regulations specific to stablecoins. These rules will incorporate into the existing legal framework governed by the Financial Services and Markets Act, key activities such as crypto issuance, exchange, investment, custody and lending.
Richard Mico, CEO and global head of legal, risk and compliance at crypto infrastructure provider Banxa, believes that 2024 will witness the crystallization of defined regulations, offering protection to millions of investors who are actively participating in the digital asset market. He notes that this clarity may also encourage the crypto-curious who have been hesitant due to regulatory uncertainty.
Stablecoin Legislation
The government’s phased approach places stablecoin legislation at the forefront. The Financial Conduct Authority is expected to take custody of stablecoin and be in charge of overseeing its issuance. As mentioned earlier, stakeholders have until February 6, 2024, to provide input on the blueprints published by the Treasury, FCA and Bank of England. Following this, the FCA will formulate new stablecoin rules, with the Treasury targeting readiness “by early 2024,” subject to parliamentary bandwidth.
The second phase of implementation extends the regulatory framework to cover a broader spectrum, including crypto exchanges, lenders and other service providers. Richard Mico anticipates that these rules will be presented before Parliament for final approvals in mid-to-late 2024.
FCA Promotions Rules
As crypto firms gear up for compliance, a critical deadline looms in early January 2024. Crypto firms must adhere to FCA rules on marketing and advertising, with violations carrying the weight of criminal offences and substantial fines. The regulatory landscape is strict, with some major crypto providers including Revolut, Binance and PayPal temporarily pausing their services in response to the perceived technical complexity of these rules.
The stringent regulations require firms to implement technical additions to their platforms, such as risk warning pop-ups and 24-hour cooling-off periods. Richard Mico suggests that these measures may impact crypto activity in the UK, leading to concerns raised by major crypto providers about the technical and complex nature of the rules.
Digital Sandbox
Unlike the existing digital sandbox, the Digital Securities Sandbox aims to allow larger financial institutions like banks, some leeway under supervision to experiment in areas where they might encounter regulatory barriers.
Helen Boyd, head of capital markets at the FCA anticipates that the Digital Securities Sandbox will enable market infrastructure to test a new set of rules, allowing for experimentation with digital securities. This approach represents a shift from the traditional regulatory process, embracing a more iterative and learning-focused approach.
Conclusion
As the UK charts its course to become a global hub for crypto asset technology, the regulatory landscape in 2024 unfolds as a critical determinant of success. Rishi Sunak’s vision relies on the effective implementation of regulations, clear frameworks and collaboration between government bodies and industry stakeholders. The phased approach, stablecoin legislation, the rules on promotions, and the Digital Securities Sandbox collectively shape the trajectory of the UK’s crypto landscape, bringing opportunities and challenges that will define the future of digital assets in the country.