Released on February 1st by the HM Treasury (HMT), the Consultation paper and call for evidence on the regulatory regime for cryptoassets mark a significant step toward the UK's ambitious goal to become “the most open, well-regulated, and technologically advanced capital markets in the world”.
The Consultation focuses primarily on a regime for fiat-backed stablecoins (phase 1) as a broader cryptoassets regime will be considered at a later stage (Phase 2).
Stakeholders will have to provide their comment on various proposals, some of which are outlined hereunder.
Definition of cryptoassets and legislative approach.
This include some of the following:
Expansion of the list of “specified investments” to include cryptoassets
Non inclusion of cryptoassets in the definition of a "financial instrument"
Use of the Designated Activities Regime to legislate for certain cryptoasset activities
To note that the Consultation paper provides a non-exhaustive list of cryptoassets that would be considered to be in scope of Phase 2. This list comprises exchange tokens; utility tokens; non-fungible tokens (NFTs); asset-referenced tokens (ARTs); commodity-linked tokens; crypto-backed tokens; algorithmic tokens; governance tokens; and fan tokens.
Proposed scope of regulated cryptoasset activities
Legal and natural persons that engage in the following activities will be subject to the applicable regulatory regime. The UK is proposing a phased-in approach:
Phase 1 activities
Issuance (restricted to the issuance and redemption of fiat-backed stablecoins)
Payment
Safeguard/Custody
Phase 2 activities
Issuance (admission of a cryptoasset to a crypto asset trading venue…),
Exchange
Investment and risk management
Lending, borrowing & leverage
Safeguard & Custody of cryptoassets that are not fiat-backed stablecoins
Validation & governance
Cryptoasset activities provided in or to the UK will be scope of the regime.
The Consultation paper incorporates the proposed regulatory framework for each regulated activity.
Regulatory Outcomes for Cryptoasset Issuance and Disclosures
Based on the principles of the intended reform of the UK prospectus regime, the proposal will consider the admission to a trading venue and a public offer (including initial coin offerings).
For example, trading venues will have to provide detailed requirements for disclosure documents required for admission and implement rules that will adequately govern the accuracy and fairness of marketing materials.
The Consultation also proposes a market abuse regime for cryptoassets similar to the UK Market Abuse Regulation for financial instruments (e.g., shares, bonds, and derivatives traded on certain trading venues).
The consultation will close on 30 April 2023 and market participants can submit their comments on cryptoasset.consultation@hmtreasury.gov.uk.