Innovate Finance response to HM Treasury consultation on future UK regulatory regime for cryptoassets
In its response to the UK Government’s proposals for regulating cryptoassets, Innovate Finance has welcomed the broad approach whilst identifying key areas where further work is needed and where the proposals need to be reconsidered to ensure a proportionate, competitive framework that provides effective protection for consumers.
Overall we welcome the HM Treasury proposals. We at Innovate Finance, and the responsible crypto firms we represent, see regulation as essential for consumers, stable markets and a level playing field. The UK proposals cover a range of areas where events over the last year have underlined the need for regulation: including information, governance and certification, and custody.
As we have advocated, the HM Treasury proposals have taken as a starting point how existing rules for similar activities can be applied. We welcome the declared aim of a proportionate and innovation-friendly approach. Overall the approach outlined sends a strong signal that the UK Government is seeking to develop, as quickly as possible, a proportionate regime that provides protection for consumers, building the trust that supports innovation and adoption, and in ways that supports a competitive and vibrant cryptoassets and digital asset sector.
HM Treasury proposals are largely on the right lines In most cases further work is needed and we welcome the commitment of both HM Treasury and the FCA to work with industry to develop the next level of detail.
There are some areas which may need reconsideration or further development. These include:
- Disclosure and admission to trading: Making trading venues responsible for disclosure of cryptoassets that have no issuer (e.g. Bitcoin). We believe this could be inefficient, inconsistent and uncompetitive and could disincentivise many trading venues from making the UK a preferred destination to establish operations. We would encourage alternative models to be developed.
- Aggregate requirements on trading venues: consideration needs to be given to the overall burden on trading venues and how to avoid creating a regime in which only the largest firms can afford to set up and operate in the UK. Proportionate models for smaller venues, perhaps with more limited activities, need to be developed to ensure there are no insurmountable barriers to market entry.
- Lending: There are many different types of cryptoasset lending and the UK regulatory regime should not try to cover all at once nor take a one-size-fits-all approach. The focus should be on some basic consumer protections against the most high-risk models - emphasising ‘caveat emptor’ - and development of an authorisation model which can be applied in the first instance to lower risk models.
- DeFi: DeFi applications and developers should not be regulated at this stage.
Enable and promote RegTech solutions
For every area of the regulatory regime, RegTech solutions should be enabled and encouraged.
Collaborative, iterative working needed to take forward
We would encourage an iterative and collaborative approach with industry in taking this forward. This will call for more direct discussions with industry on specific areas and need to be a more dynamic process than a traditional ‘consultation-response-consultation’ paper-based exercise. We very much welcome initial discussions with the FCA that indicate a readiness to work directly with industry participants to workshop and test the detailed application of rules to different activities, assets and products. We - and our members and partners – stand ready to actively contribute to this.