Lawmakers in the UK appear to be accelerating efforts to address hot-button crypto issues, but how would the recent resignations impact things?
The UK is gearing up to close the regulatory vacuum present in the crypto market. The recent crash has only strengthened lawmakers’ resolve. As such, the Bank of England’s Financial Policy Committee highlighted the need for enhanced regulatory and law enforcement frameworks in the sector.
Enhanced Regulatory Framework in Crypto
In their latest report, the committee said that while the growth of crypto-assets and their associated markets and services do not pose an immediate threat to the UK financial system, the asset class has the potential to do so in the future.
“Cryptoasset valuations have fallen sharply. The market capitalization of crypto assets has fallen to US$900 billion, from a peak of almost $3 trillion in late 2021. A number of vulnerabilities were exposed within crypto-asset markets similar to those exposed by past episodes of instability in more traditional parts of the financial system.”
The recent events in the crypto market, such as the liquidity crisis and leveraged positions being unwound, have amplified price falls. And while FPC noted that if these issues remain unattended, it could lead to the emergence of systemic risks as crypto becomes integrated with the broader financial system.
Stablecoin is one of the hot-button issues in the crypto market that the regulators are keen on establishing important provisions. The FPC has already stated that these tokens used as money-like instruments in the systemic payment chain should meet necessary standards for commercial bank money about the “stability of value, the robustness of legal claim, and the ability to redeem at par in fiat.”
UK’s top regulator – Financial Conduct Authority – said it will investigate Terra’s collapse while developing new rules for the asset class. Even though it appeared that regulations may have taken a back seat with the Russian invasion of Ukraine at the beginning of the year, the subsequent market crash and its ripple effects have forced the global watchdogs to expedite the process.
Onboarding Digital Assets Director
UK Chancellor and one of the senior-most Cabinet ministers, Rishi Sunak, wants Britain to be a “global hub” for crypto. This may signify the government’s appetite to become an attractive place for cryptocurrency companies.
But on the operation side, it’s a stalemate. The present process for granting licenses to crypto firms is complicated and protracted. As a result, many prominent platforms have resorted to set shops elsewhere.
However, it’s worth noting that the situation in the UK changed drastically over the week with the resignation of Sunak, followed by several other ministers, and ultimately Boris Johnson. According to some estimations, Sunak is among the favorites to be the next Prime Minister, which could further alter the local crypto ecosystem.
In a bid to oversee crypto, the FCA announced appointing the director of the multi-agency National Economic Crime Command (NECC), Matthew Long, as its new director of payments and digital assets. Long’s previous positions have centered around economic crime and illicit finance. The newly established role will include overseeing crypto markets and leading related policy development.
The UK government has called for public input on the taxation of crypto-asset loans and staking from decentralized finance (DeFi) participants.
According to Her Majesty’s Revenue and Customs’ (HMRC) call for evidence, the government is keen on determining whether administrative burdens and costs could be reduced for taxpayers involved in this activity and if the tax treatment can be better aligned with the underlying economics of the transactions.
Interested investors, professionals, and firms engaged in DeFi activities have until August 31 to submit their evidence.