UK financial watchdogs have made a number proposals which aim to bring cryptoassets into the regulatory fold.
The UK Government’s Cryptoasset Taskforce is comprised of the Bank of England, the Financial Conduct Authority and the Treasury. It was set up last year to examine the regulatory implications of distributed ledger technology and the booming market for cryptocurrencies.
Their Taskforce Report considered the policy and regulatory implications of distributed ledger technology (DLT), and cryptoassets, and at a high level set out some of the opportunities and risks they present.
In its final report, it said: “While DLT is at an early stage of development, it has the potential to deliver significant benefits in financial services and other sectors in the future, and all three authorities will continue to support its development.”
While earlier reports on DLT were generally positive, the FCA has now taken a more strigent view on cryptoassets in its final report, stating: “The FCA has made clear that in its view cryptoassets have no intrinsic value and investors should therefore be prepared to lose all the value they have put in.
“Whilst the Taskforce appreciates that cryptoassets have the potential to bring benefits to markets, firms and consumers, there remains considerable risks that HMT, the Bank of England and the FCA will take action to mitigate.”
The final report sets out a range of proposals to bring the world of cryptocurrency activity under the regulatory bonnet. The Taskforce has committed to a number of actions, including consulting on perimeter guidance by the end of 2018 to clarify which cryptoassets fall within the existing regulatory perimeter, and those cryptoassets that may fall outside.
It also consulted on whether the regulatory perimeter requires extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter, as well as a separate consultation by Q1 2019 on a potential prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets.
Given the complexity and new challenges presented to traditional forms of financial regulation, the report said more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as Bitcoin.
The government will issue a consultation in early 2019 to further explore whether and how exchange tokens, and related firms such as exchanges and wallet providers, could be regulated effectively; and will implement ‘one of the most comprehensive responses’ globally to the use of cryptoassets for illicit activities by applying and going further than the fifth EU Anti-Money Laundering Directive.
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