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In a bold move to position Britain as a global leader in digital finance, the UK government has unveiled ambitious plans to transform the country into a hub for digital assets. Announced in 2022, these plans include comprehensive regulation of cryptocurrencies and the creation of an innovative ‘sandbox’ to test how distributed ledger technology can revolutionise the trading of traditional financial assets.
This initiative signals the UK’s commitment to staying ahead of the ever-shifting financial landscape. Keep reading to discover how these developments could reshape the future of finance.
What is the Appropriate Regulation of Crypto Assets in the Uk
The regulation of crypto in the UK started with a consultation in 2022 that addressed the dangers and opportunities crypto assets present. Some of the major risks associated with cryptocurrencies include their volatility, cybersecurity concerns, and the lack of adequate regulation for crypto exchanges.
If the UK government were to ban cryptocurrencies, there is no guarantee that such a ban would protect consumers, especially given the high public demand and the availability of services in other countries. In fact, several countries that have banned crypto assets have seen higher adoption rates.
However, there are also significant opportunities associated with cryptocurrency use. By positioning the UK as a safe and regulated environment for the development and use of these technologies, the country could attract investment, create new jobs, increase tax revenues, and drive innovation in new products and services.
The unregulated nature of cryptocurrencies has been the major reason governments continue to oppose virtual assets. Regulations serve as an enabler and were understandably a significant focus of discussion.
Although a wider controversy extends beyond regulation, some understanding of the law on crypto would be quite useful. How does the law acknowledge a digital asset solution? This is especially important for cryptocurrency exchanges like Oanda crypto platform, which operate in multiple jurisdictions and must conform to various regulatory laws.
What is the Property Bill?
At present, there are two categories of property: “things in possession” and “things in action.” Examples of “things in possession” include money, vehicles, and boats. Debt, shares, and intellectual properties are examples of “things in action” properties.
Thanks to the Property Bill introduced in early September, digital assets such as cryptocurrency and non-fungible tokens can be treated as personal property under the law. This Bill introduces a third category of “thing” designed to allow certain digital assets to be treated as personal property and attract associated rights. The bill’s effect is to afford legal protection to crypto owners.
These steps taken are in response to the 2023 report from the Law Commission. The Ministry of Justice (MOJ) commissioned this report to identify obstacles to the recognition of digital assets as property under England and Wales’s private law and propose appropriate solutions.
In the past, digital assets were not covered by the UK’s property law, leaving owners in a legal grey area when their assets were tampered with or misused.
This new law will protect individuals and companies against fraud and scams. It also helps judges handle complex cases that involve digital assets, such as disputes or settlements in divorce proceedings.
It is vital that the law evolves alongside advancing technologies, and this legislation will allow the sector to maintain its global leadership in crypto assets while offering clarity in complex property cases.”
Difference in Approach to the EU
The UK’s approach is more incremental compared to the European Union’s. In May 2023, the European Union implemented the world’s first cryptocurrency regulation, the Markets in Crypto-Assets Regulation (MiCAR).
Among the rules are requirements for any company issuing or trading cryptocurrency to obtain a license. Also, starting in January 2026, all service providers must collect the names of both senders and recipients, regardless of the amount being transferred. Additionally, self-hosted wallets holding more than 1,000 euros will be subject to ownership verification for transactions.
MiCAR seeks to regulate the crypto sector across the EU and cover various crypto-assets from the outset.
Significant differences exist between MiCAR and the UK’s regulatory proposals, such as the classification of crypto-assets, the range of regulated activities, and disclosure requirements for crypto-asset issuers.
The Introduction of Digital Securities Sandbox
The Digital Securities Sandbox (DSS) is a regulated live environment designed to explore how firms can use new technologies to carry out activities such as notary services, maintenance, and settlement of financial securities. For instance, the DSS will support the issuance, trading, and settlement of digital securities in the UK using distributed, programmable ledgers.
The FCA and the Bank of England jointly operate the DSS, which has three key goals: to foster innovation, safeguard financial stability, and maintain market integrity.
This initiative aims to position the UK as a global leader in financial innovation by creating conditions that encourage investment and sustainable growth. The DSS is divided into phases, known as gates, that allow participants to expand their scope of permitted activities as they move through each stage. It is important to note that the UK’s focus on DLT does not imply an intention to promote cryptocurrencies. Eligible financial instruments within the DSS include equities, corporate and government bonds, money market instruments, fund units, and emissions allowances.
How Can the UK Benefit from the Wider Crypto Focus?
Distributed Ledger Technology (DLT) was designed to promote innovation within financial market infrastructure. Its application can potentially improve post-trade processes and make them faster and more cost-effective. These technologies could generate significant savings for participants, including pension funds, investment firms, and banks, if successfully implemented.
Consider a company that issues bonds to raise capital. Currently, the process involves multiple intermediaries such as brokers, clearinghouses, and custodians, each adding time and costs. With Distributed Ledger Technology (DLT), this process could be simplified.
Using a blockchain, the bond issuance could be recorded, verified, and transferred directly between the company and investors without the need for these intermediaries. This would make the process faster, cheaper, and more transparent.
For the company, this means quicker access to funds and lower capital-raising costs. For investors, it offers increased participation opportunities and more confidence in the security and accuracy of transactions.
Businesses’ use of blockchain technology and digital assets is expected to extend beyond the financial services sector. As business leaders seek new and innovative ways to improve operations, different industries will likely adopt this technology to reduce friction.
Can Crypto Give the UK an Edge Over the EU?
The UK is dedicated to creating an environment that encourages innovation while ensuring financial stability and maintaining clear regulatory standards. The goal is to provide individuals with accessibility and security so they can use new technologies with confidence.
The government has announced its final proposals for regulating crypto assets in the UK. These proposals include bringing various crypto-related activities under the financial services regulatory framework for the first time. If implemented successfully, innovations associated with blockchain can significantly boost the UK’s economy.