The UK’s financial authorities have published their joint report on cryptoassets, proposing and new regulatory framework and further consultation on specific risks and opportunities.

HM Treasury, the Financial Conduct Authority and the Bank of England were tasked with reporting on this emerging part of the industry by the chancellor back in March.

The taskforce’s report concluded that while the underlying distributed ledger technology (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”.

The report went on to state that there is limited evidence of the current generation of cryptoassets delivering benefits, but this is a rapidly developing market and benefits may arise in the future.

“There are substantial potential risks associated with cryptoassets, and the most immediate priorities for the authorities are to mitigate the risks to consumers and market integrity, and prevent the use of cryptoassets for illicit activity,” it read.

The authorities will consult on:

• Implementing one of the most comprehensive responses globally to the use of cryptoassets for illicit activity.
• A potential prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets - for example, exchange tokens - including CFDs, options, futures and transferable securities – with a consultation due early 2019.
• Guidance clarifying how certain cryptoassets already fall within the existing regulatory perimeter.
• Whether the regulatory perimeter requires extension in relation to cryptoassets that have comparable features to specified investments but that fall outside the perimeter.

The taskforce also concluded that exchange tokens present new challenges to traditional forms of financial regulation. There is therefore a need to consider carefully how regulation could meaningfully and effectively address the risks posed by exchange tokens and what, if any, regulatory tools would be most appropriate.

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, in the case that other measures outlined in this report do not adequately address all relevant risks.

“Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as Bitcoin,” read the report.

The taskforce concluded that “strong action” should be taken to address the risks associated with cryptoassets that fall within existing regulatory frameworks. “Further consultation and international coordination is required for those cryptoassets that pose new challenges to traditional forms of financial regulation, and fall outside the existing regulatory framework,” the taskforce stated.

Cryptoassets pose a range of risks, notably to consumers (who may face large losses), market integrity (due to manipulation and other market-abuse style strategies) and financial crime.

Commenting on the final report, industry body CryptoUK’s chair Iqbal V. Gandham said it is right to focus on the need for regulation of cryptoassets to support innovation, competition and consumer protection.

“We are pleased that today’s report announces a Treasury consultation on bringing cryptoassets within the regulatory perimeter of the FCA,” he stated. “We have consistently argued that this is the simplest and most effective way to introduce regulation, in taking forward these plans, it is important that new rules are proportionate and do not excess put up excessive barriers, including for retail investors.”

Share Story: