Perspective by: Azariah Nukajam, head of regulation and compliance at Gemini
The UK finds itself at a pivotal moment in its handling of the swiftly changing digital assets landscape.
Having established itself as a financial giant in the global economy, the government frequently discusses its aim to position the UK as a “premier global crypto hub.” However, policy advancements have been slow, disjointed, and not sufficiently ambitious.
Such indecision can have significant repercussions for a rapidly evolving sector like cryptocurrencies and decentralized finance (DeFi). Capital, talent, and innovation can easily relocate. The UK risks falling behind more proactive regions such as the US and Singapore.
To maintain its competitive edge, the government needs to align its aspirations with decisive actions while learning from international counterparts.
Aspirations vs. Execution
The Financial Conduct Authority (FCA), the financial regulator in the UK, and the government should collaborate closely to nurture the growth of this sector and ensure compliance with attainable regulations. The government sets the legal framework, while the FCA is responsible for implementing and enforcing these regulations, providing guidance and timelines for compliance.
Transparent and forward-thinking legislation is vital for a healthy market. In contrast, the previous US administration’s “regulation by enforcement” stance created confusion, as no clear authority defined the governance of the crypto sector.
Recently, the UK government proposed a Draft Statutory Instrument (SI), a progressive framework aimed at regulating crypto assets, striving to foster a crypto-friendly environment. While theoretically a significant step for the UK’s digital asset sector, in practice, it falls short for several reasons.
Continuous feedback from industry members emphasizes the sluggish pace of regulatory reforms; institutions have long awaited clarity on the UK’s position regarding listed crypto products. Although the FCA opened retail access to crypto exchange-traded notes in August, crypto exchange-traded funds (ETFs) remain prohibited.
Furthermore, the ambiguity surrounding the regulatory parameters for DeFi—a rapidly expanding sector—complicates navigation for crypto firms trying to understand the boundaries between DeFi and centralized finance (CeFi).
Related: 40% of UK crypto users report blocked payments amid increasing ‘anti-consumer’ practices
The proposed legislative and regulatory changes also impose heavier reporting requirements, straining compliance teams and undermining the fundamental privacy ethos associated with decentralization. One notable example is the automated tax reporting mandate to HMRC (the UK’s tax authority), which many believe could deter investors from using UK-based exchanges, pushing them toward jurisdictions with more favorable tax conditions.
If the government fails to heed industry feedback and create a balanced framework that safeguards consumers while encouraging innovation, it risks being outpaced in the global crypto arena.
A Proactive Regulator
Conversely, the FCA has adopted a more structured and proactive approach to the UK’s crypto industry, indicating a willingness to engage with crypto firms to prevent market abuse and safeguard consumers while maintaining competitiveness.
Unlike the government’s often reactive stance, the FCA has proactively hosted discussions, sought industry feedback, and laid out a phased roadmap for regulatory development through its Crypto Roadmap. They have offered detailed advice on the implementation of specific regulations concerning consumer protection, market integrity, and responsible innovation. Regardless of differing opinions on the FCA’s proposals, this transparency and predictability are crucial for building confidence among UK crypto businesses and investors.
Nonetheless, the challenge remains for the FCA to ensure that its regulations are proportionate. While larger firms may manage heavy compliance burdens, smaller startups could struggle, potentially dissuading them from operating in the UK.
A Path to Crypto Leadership
The silver lining is that there’s still an opportunity to recalibrate. Other regions have already made decisive moves in crypto regulation. The EU’s Markets in Crypto-Assets Regulation framework offers businesses clear operational guidelines, while the CLARITY and GENIUS Acts position the US towards global crypto leadership. The Monetary Authority of Singapore has implemented a rigorous licensing system along with regulatory sandboxes and pilot projects. Although the UK can benefit from a second-mover advantage by learning from these experiences, it risks being left behind without swift action to address the industry’s concerns.
The groundwork laid by the regulator is promising; with enhanced alignment with the government, bold ambitions, and precise execution, the UK can create a fertile environment to emerge as a leader in the global crypto economy.
Perspective by: Azariah Nukajam, head of regulation and compliance at Gemini.
This article is intended for general informational purposes and should not be taken as legal or investment advice. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.
