The UK government should leverage the benefits of blockchain technology and innovate in the regulation of crypto assets to develop new processes that can ultimately be applied in traditional markets, management intelligence platform Acuiti argues.
In 2022, the then Chancellor of the Exchequer, Rishi Sunak, explained that it was his “ambition to make the UK a global hub for crypto asset technology,” after announcing moves that saw stablecoins recognised as a valid form of payment.
As Prime Minister, Sunak also oversaw the UK government as it published a consultation paper which set out how it will seek to base as much as possible of the framework that governs crypto assets on existing legislation.
A new Acuiti paper, Competitive Advantage: Charting the Path Ahead for UK Cryptoassets Regulation, welcomes this approach and supports initiatives highlighted in the consultation paper that propose industry-led approaches.
Released in partnership with Portofino Technologies and Zodia Markets, argues that the UK should use its second-mover advantage in developing the rules after the EU has passed its regulation into law. By doing so the UK could create an environment that best fosters innovation in crypto assets.
Outdoing MiCA regulations
The UK is developing its framework for the governance of crypto assets after the EU has already passed into law the Markets in Crypto-Assets Regulation (MiCA). While MiCA provides a comprehensive framework for the issuance and trading of digital assets, it was written prior to events in 2022.
This means that the UK has the advantage of taking the likes of FTX’s collapse into bankruptcy into consideration – something that dramatically altered the crypto landscape.
Some parts of the crypto ecosystem also view the MiCA as too strict in certain areas such as the ban on algorithmic stablecoins and requirements for firms offering custody of cryptoassets.
Will Mitting, founder of Acuiti, said: “The UK has the opportunity to develop a regulatory framework for crypto assets that will increase economic competitiveness and fuel job creation and innovation while, at the same time, protecting investor interests and achieving secure and transparent markets.
“Where possible, regulations for institutional investors should closely align with existing rules. There are, however, certain areas in which crypto assets are distinct. The regulation of crypto assets in the UK, therefore, needs to reflect these differences while allowing the market to evolve as efficiently and securely as possible.”
However, the UK’s approach also poses certain risks. The government plans to introduce new rules in two phases with the regulatory framework for the custody of most crypto assets in Phase 2. Any delays in creating a regulatory framework around key areas of the market could hand the initiative to other jurisdictions that are also aiming to establish themselves as hubs for crypto asset innovation.
Acuiti’s paper on crypto asset regulation was based on a roundtable held in May with several key firms in the UK crypto assets market, as well as regulators.
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