UK government announces plans to protect consumers through cryptoasset regulation

The UK Treasury has announced a consultation on proposed cryptoasset regulation as it makes plans to protect consumers without dampening the economic benefits of the sector.

Cryptoassets have potential benefits, but also pose risks to consumers, said the government, which wants a “robust, transparent and fair” cryptoasset sector.

“As is common in emerging technology markets, the crypto sector continues to experience high levels of volatility and a number of recent failures have exposed the structural vulnerability of some business models in the sector,” said a UK Treasury statement.

For example, in November 2021, the market for cryptocurrency surged to a peak valuation of almost $3tn. But by June 2022, it had lost over two-thirds as inflationary pressures and a gloomy economic outlook spooked investors.

The government said the regulation would support its plans to position the UK as a safe jurisdiction for cryptoasset activity, to encourage innovation.

Planned regulation will set out to protect consumers without stifling the potential economic benefits of the crypto industry, according to the Treasury: “Our robust approach to regulation mitigates the most significant risks while harnessing the advantages of crypto technologies.”

Andrew Griffith, economic secretary to the Treasury, said: “We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. But we must also protect consumers who are embracing this new technology, ensuring robust, transparent and fair standards.”

In line with its regulation of traditional financial services, a “broad suite of cryptoasset activities” will be regulated, said the Treasury. This includes regulation on crypto trading venues, crypto storage and lending.

“These steps will help to deliver a robust world-first regime strengthening rules around the lending of cryptoassets, whilst enhancing consumer protection and the operational resilience of firms,” said the UK Treasury.

The industry consultation will close on 30 April 2023.

Separately, the government last week announced its search for someone to head up its work on developing a central bank digital currency (CBDC).

Central banks across the world are having to devise policies on the use of digital currencies, as consumers move away from cash as their main payment method. The pandemic accelerated the move to digital payments as they remove the need for physical contact and therefore reduce potential Covid-19 transmission.

Banks will need to create regulations to address a number of issues to ensure that society benefits from new ways of making payments. A Bank of England discussion paper, published in June 2021, stated that before new forms of digital money “could be used widely, there are issues around the safety of money and macroeconomic stability that need to be addressed”.

At the time of publishing its discussion paper, the UK central bank was calling for feedback on the use of cryptocurrency, including on potentially introducing its own.

Andrew Baily, governor of the Bank of England, said at the time: “The [Bank of England] has not yet made a decision on its detailed regulatory approach to stablecoins, or on whether to introduce a CBDC in the UK. These questions will need to be considered in consultation with the government.”