The Government said that it hopes the new legislation will allow the benefits of crypto technology to be realised. (Dominic Lipinski/PA)
(Picture: PA Archive)The government has unveiled plans to regulate the crypto market as part of a bid to protect consumers in the wake of the FTX scandal.
Fresh rules are set to be introduced for crypto trading platforms in addition to a new, stricter regime for crypto lending as part of a consultation launched today. Crypto activity, rather than crypto assets themselves, will be subject to the new rules, according to the consultation.
Economic Secretary to the Treasury, Andrew Griffith 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.”
It comes after a record £1.6 billion worth of cryptocurrency was stolen in hacks of services in the year to July 2022 as organised online criminals and nefarious state actors exploit vulnerabilities in decentralised finance.
The sums are around 60% higher than for the same period a year ago, according to data from blockchain platform Chainalysis, and stand in stark contrast to overall criminal activity online, which is down 15%, and online scam revenue, which fell 65%.
The government consultation paper said the implosion of FTX has highlighted the urgent need for tougher crypto regulation.
“FTX’s failure has underscored important questions around conflicts of interest, market conduct and operational resilience. It has also demonstrated that integrated business models – currently prevalent across the ecosystem – can result in complex and sometimes reinforcing risk profiles,” it said.
“Mitigating these risks will require a combination of robust prudential safeguards, operational risk controls, transparency and data reporting arrangements, measures to manage conflicts of interest, good governance and adequate record keeping.”
Louise Abbott, cryptocurrency fraud partner at Keystone Law, said: “At present in the UK, there is no real regulation for the industry, leaving investors exposed to scams and exchange collapses. Crypto fraud is on the increase with assets stolen through crypto hacks or scams. In addition, the collapse of exchanges such as FTX, along with serious allegations of misappropriation of funds, corruption, and lack of corporate governance have led to investor confidence being at a low point.
“The crypto sector desperately needs some good news, and the Treasury’s announcement today that plans to regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance, is a welcome statement.”
You can read the full details of the consultation here.
