The document noted that there is a view the MiCA is too stringent in certain areas such as the ban on algorithmic stablecoins and requirements for firms offering custody of cryptoassets.
An Acuiti paper, published in partnership with Portofino Technologies and Zodia Markets, argues that the UK government should innovate in the regulation of cryptoassets to develop new processes that can ultimately be applied in traditional markets.
UK regulators can leverage its second mover advantage in developing the rules after the European Union has passed its MiCA regulation into law to create an environment that fosters innovation in cryptoassets, according to “Competitive Advantage: Charting the Path Ahead for UK Cryptoassets Regulation“.
UK crypto regulation needs to reflect differences between cryptoassets and TradFi
Will Mitting, founder of Acuiti, commented: “The UK has the opportunity to develop a regulatory framework for cryptoassets 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 be closely aligned with existing rules. There are, however, certain areas in which cryptoassets are distinct. The regulation of cryptoassets in the UK, therefore, needs to reflect these differences while allowing the market to evolve as efficiently and securely as possible.”
The UK is developing its framework for the governance of cryptoassets after the EU has already passed into law the Markets in Crypto-Assets Regulation (MiCA), a comprehensive framework for the issuance and trading of digital assets.
MiCA, however, was written prior to the events of 2022, which raised new areas of risk and considerations. Hence, the UK has an opportunity to do better, the Acuity paper claims, adding that areas in which regulations could leverage the innovations in cryptoassets to develop new processes that could be adopted in traditional markets include the policing of market abuse by venues and new custody models.
UK should lead on cryptoasset custody regulation, but faces risks
The document further noted that there is a view the MiCA is too stringent in certain areas such as the ban on algorithmic stablecoins and requirements for firms offering custody of cryptoassets.
The government’s plans to introduce new rules in two phases with the regulatory framework for the custody of most cryptoassets in Phase 2 risks handing the initiative to other jurisdictions that are seeking to establish themselves as hubs for cryptoasset innovation.
The paper looks at two key angles that will inform the UK’s approach: its second mover advantage and how to develop different environments for retail and institutional investors and then explores how to optimise regulation for issuance, trading, lending and custody of cryptoassets.
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