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Perspective by: Azariah Nukajam, head of regulation and compliance at Gemini
The UK stands at a pivotal moment in its strategy toward the swiftly advancing digital assets arena.
Having established itself as a financial power in the contemporary global marketplace, the government frequently articulates its ambition to make the UK a “preeminent global crypto center.” Nevertheless, policy formulation has been sluggish, disjointed, and not sufficiently daring.
Delays incur costs for a sector as dynamic as cryptocurrency and decentralized finance (DeFi). Capital, expertise, and ingenuity are highly flexible. The UK risks falling behind more dynamic regions like the US and Singapore.
To maintain its competitiveness, the government must align its ambitions with tangible actions while drawing lessons from its international counterparts.
Aspiring goals and sluggish execution
The Financial Conduct Authority (FCA), the UK’s regulatory authority for financial services, and the UK government should collaborate closely to foster the growth of the space and ensure that these regulations are both observed and feasible. The UK government bears the responsibility of establishing the legal framework, while the FCA executes and enforces these regulations, offering guidance and timelines on compliance.
Transparent and forward-thinking legislation is vital for a healthy market. A contrasting instance is the former US administration, which adopted a “regulation by enforcement” strategy toward the crypto sector, lacking a clear agency to outline the rules governing the industry.
The UK government has recently put forward a Draft Statutory Instrument (SI), an innovative framework for regulating crypto assets, aiming to foster a crypto-friendly environment within the UK. In theory, this represents a substantial milestone for the UK’s digital asset landscape. However, in practice, it amounts to merely a slight advancement for various reasons.
Ongoing dialogues among industry participants continuously underscore the slow reform pace; institutions have long awaited clarity regarding the UK’s position on listed crypto products, and in August, the FCA enabled retail access to crypto exchange-traded notes. Meanwhile, the increasingly popular crypto exchange-traded funds (ETFs) continue to face bans.
Furthermore, worries regarding the lack of clarity about the regulatory limits for DeFi — a burgeoning sector within the industry — complicate the navigation for crypto firms between the DeFi and centralized finance (CeFi) perimeter.
Related: 40% of UK crypto users report blocked payments amid rise in ‘anti-consumer’ practices
The suggested legislative and regulatory frameworks also impose significantly more reporting obligations, straining firms’ compliance teams and undermining the privacy principles associated with decentralization. Automated tax reporting to HMRC (the UK’s tax, payments, and customs authority) stands as a prominent example, which many contend will deter investors from utilizing a UK-based exchange and redirect them towards jurisdictions with more favorable tax regimes.
Unless the government actively considers industry feedback and adjusts to establish a comprehensive framework that balances consumer protections and innovation, it risks lagging in the global crypto race.
A proactive regulator
Conversely, the FCA has adopted a more structured and involved method concerning the UK’s crypto sector, indicating its willingness to engage with crypto firms to prevent market misconduct and safeguard consumers while remaining competitive.
In contrast to the government, which often seems reactive, the FCA has been proactive: organizing roundtables, gathering industry feedback, and detailing a gradual approach to regulatory advancement with its Crypto Roadmap. They have also supplied more extensive guidance on effectively implementing specific regulations pertaining to consumer protection, market integrity, and facilitation of responsible innovation. Even if industry participants may disagree with the FCA’s suggestions, this significantly matters in a field that values transparency and predictability, instilling confidence in UK crypto enterprises and investors.
However, the challenge lies in the FCA ensuring that its regulations are proportionate. While larger firms may manage substantial compliance burdens, smaller startups might find it challenging to comply, which could deter them from operating within the UK.
A trajectory toward crypto prominence
The encouraging news is that there remains an opportunity to alter direction. Other regions have already enacted more decisive actions regarding their crypto regulations. The EU’s Markets in Crypto-Assets Regulation framework provides businesses with clear and thorough rules to operate under, the CLARITY and GENIUS Acts have positioned the US on the pathway to global crypto supremacy, and the Monetary Authority of Singapore has implemented a stringent licensing procedure coupled with regulatory sandboxes and pilot schemes. While being a second-mover may allow the UK to learn from others’ experiences, it also risks being left behind if rapid action is not taken to address the industry’s concerns.
The regulator has established a promising groundwork, and through enhanced collaboration with the government, ambitious goals, and meticulous implementation, the UK can cultivate the groundwork to emerge as a leader in the global crypto landscape.
Perspective by: Azariah Nukajam, head of regulation and compliance at Gemini.
This article serves general informational purposes and is not intended to be construed as legal or investment counsel. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the viewpoints and opinions of Cointelegraph.
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