UK brings crypto within regulatory perimeter
The Financial Services and Markets Act 2023 (FSMA) was formally adopted into UK law on 29 June 2023 upon receiving royal assent. The legislation will enable the UK's transition from EU-based financial services laws and bring crypto-assets within the regulation perimeter in the UK.
The new law recognizes "cryptoassets" as a form of investment bringing it within the scope of regulated financial activity. FSMA defines cryptoassets broadly:
“cryptoasset” means any cryptographically secured digital representation of value or contractual rights that—
(a) can be transferred, stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
The Act will also bring stablecoins within the scope of payments regulations as a form of "digital settlement assets" and provides for broader regulation of promotions relating to cryptoassets.
In a press release, the UK government stated:
The Act is central to the Government’s vision to grow the economy and create an open, sustainable and technologically advanced financial services sector.
The changes enable the delivery of key Edinburgh Reforms, putting the UK on course to be the most dynamic and competitive financial services hub in the world.
The reforms are intended to facilitate the "safe adoption" of cryptoassets within the UK and establish a ‘sandbox’ that accommodates the adoption of emerging technologies like blockchain in financial services. Beyond this, the Act also removes certain restrictions on wholesale markets, protects access to cash and implements protections for victims of Authorised Push Payment scams.
The Economic Secretary to the Treasury, Andrew Griffith added:
This landmark piece of legislation gives us control of our financial services rulebook, so it supports UK businesses and consumers and drives growth.
FSMA is intended to seize opportunities by 'tailoring financial services regulation to fit UK markets'. In order to achieve its objective of enhancing regulatory scrutiny in the financial services sector for greater accountability, democratic input and transparent oversight, FSMA assigns regulators including the UK’s Treasury, Financial Conduct Authority and the Payments Systems Regulator with new and extended powers to supervise and monitor the financial system, including cryptoassets. Separately, the Treasury has been conducting consultations on crypto-specific regulation, which is anticipated to come into force within the next 12 months.
The UK’s regulatory approach is twofold - it aims to reform existing regulations where appropriate, with plans to also develop crypto-specific regulation. The broad effort by the UK to introduce a clear framework for crypto regulation is in line with their vaunted commitment to becoming a crypto hub and harnessing the benefits of innovation in financial markets.