As the UK Treasury is gearing up to regulate the cryptocurrency industry, powerful lobby groups have warned the government that this move could offer legitimacy to a market that still poses risks to consumers. The lobbyists, mostly composed of supporters of traditional finance, stressed that the proposed UK crypto regulations may provide “unearned trust with customers” and could encourage consumers to assume that the risks associated with cryptocurrency have already been addressed or managed.
The UK Treasury’s Move Towards Crypto Regulation
Since February this year, the Treasury has been gathering comments on the rules it proposed for the regulation of cryptocurrency. This is in line with the government’s intention to bring the trading, issuance, and lending of digital assets into a regulatory framework that mirrors the same mechanisms employed in stocks and bonds according to a report from the Financial Times.
However, some are hesitant about the approach, contending that the cryptocurrency market remains an uncharted territory and requires further exploration. The opposition mostly consists of supporters of traditional finance.
Concerns on the Definition of Cryptocurrencies
A point of contention among lobby groups is the lack of clarity in the proposed definition of crypto assets. The International Regulatory Strategy Group (IRSG), representing finance lobby groups UK Finance and TheCityUK, has called for more precise definitions on the subject.
The association recommended that the Treasury should study more about the implications of the broad scope of the proposed definition, which includes not only cryptocurrencies and tokenized versions of traditional financial assets but also any encrypted information that may have value.
Risks Posed by Proposed UK Crypto Regulations
The risks associated with cryptocurrency have not been effectively managed, according to lobbyists, resulting in significant financial losses for UK-based cryptocurrency holders. Last year, many cryptocurrency holders were defrauded, while others experienced a sharp decrease in the value of their assets or suffered from the collapse of cryptocurrency firms such as the infamous FTX.
The activists contended that there are still inherent risks associated with cryptocurrency that have not been addressed. They emphasized that regulation is necessary to establish trust with customers and protect consumers.
On the other hand, the Institute of Chartered Accountants in England and Wales (ICAEW), which represents the country’s Chartered Accountants, stated that UK crypto regulations would aid in mitigating risks for consumers.
The Challenges of Taxation and Disclosure Rules
Lobbyists have expressed concerns about practical challenges in handling cryptocurrency transactions. Some group members have reportedly found it difficult to deal with such transactions in practice. The Chartered Institute of Taxation and Association of Taxation Technicians called on the Treasury to address the tax treatment of crypto asset transactions.
CryptoUK, the industry’s “self-regulatory trade association,” asked for clarity on the time frame for crypto businesses to be authorized under the new regulatory framework. The association also urged the Treasury to ensure that disclosure rules did not impose “disproportionate liability on trading venues.”
Final Thoughts
The UK Treasury’s plan to regulate the cryptocurrency industry has garnered feedback from various lobby groups expressing concerns over the risks associated with it. While the proposed UK crypto regulations aim to strengthen the country’s position as a world leader in fintech, it is crucial to consider the challenges posed by the uncharted territory of this segment of the market.
The lobbyists, mostly composed of supporters of traditional finance, urge the government to be cautious and precise in defining crypto assets, address taxation, and ensure that disclosure rules do not burden trading venues disproportionately. Regulating the cryptocurrency industry may offer legitimacy, but it is crucial to balance it with the risks and challenges posed by this emerging market.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager for a consultancy firm.
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