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On April 15, 2024, at the Innovative Finance Global Summit, the UK’s Economic Secretary, Bim Afolami, announced plans to introduce new laws to regulate the issuance and usage of stablecoins and crypto in the country. This comprehensive regulatory framework is expected to be unveiled by July 2024 and will position the UK as a frontrunner in regulating the proliferating crypto industry.
The UK’s cryptocurrency industry is one of the fastest-growing crypto markets globally, outpacing Germany and the US after experiencing aggressive growth over the last decade. The popularity of cryptocurrencies in the country and their viability as legitimate assets have seen the country ammas over three million cryptocurrency users. These users are estimated to have a combined wealth of over $3.72 billion in cryptos. Furthermore, the UK crypto industry grossed an estimated $1.9bn in revenue in 2023 and is projected to reach $2.53bn in 2024.
This exponential growth and market penetration, as mainstream businesses in the UK are increasingly adopting digital currencies, have fueled the need for regulation in the industry.
What to anticipate with the new crypto laws
Today, cryptocurrencies have impacted numerous industries, from becoming the newest currency facilitating transactions in online banking to running casino demos in online gaming. Unsurprisingly, the UK aims to foster a vibrant and secure crypto environment in the country by establishing clear rules of operation in the crypto world.
At the Innovative Finance Global Summit, Bim Afolami remarked that the final proposals for the regime were being put in place to ensure the legislation was delivered sooner rather than later. He added that numerous crypto asset activities would come under the regulatory perimeter for the first time. Some of the stipulations expected from the crypto regulations include:
● Institution of licensing requirements for stablecoin issuers to mitigate the concerns of potential financial instability of stablecoins, which are cryptocurrencies whose value is pegged to traditional assets or other cryptos.
● Provision of clarity on the tax implications of staking which is when cryptocurrency owners secure their assets to facilitate validation of a transaction on a blockchain network as well as guarantee consumer protection.
● Employment of more rigorous scrutiny on the selling and buying of digital assets on cryptocurrency exchange platforms to prevent criminal activities within the crypto environment. These platforms will probably be subjected to know-your-customer (KYC) and anti-money laundering (AML) protocols, just like traditional financial systems.
● Necessitation of resilient security measures for custody services providers as they store crypto holdings for users at a fee to safeguard the assets of users from cyberattacks and other threats.
The UK’s Economic Secretary affirmed that the UK aims to attract businesses and investors in this rapidly growing sector while ensuring the country’s consumers are protected against financial risks and fraudulent activities.
UK’s journey to legislation in the cryptocurrency ecosystem
According to the UK Financial Conduct Authority, in 2019, only 42% of UK adults had heard of cryptocurrencies. In 2022, however, 91% of UK adults were aware of cryptocurrency. In addition, in 2022, the UK government expressed interest in regulating the crypto industry.
● Early 2022 – British Prime Minister Rishi Sunak unveiled that the government plans to have the UK’s financial system support crypto institutions intending to transform the UK into a leading financial center. He shared that the focus will be championing cryptocurrencies and companies’ operations, investments, innovation, and scalability.
● February 2023 – In response to the government’s agenda of making the UK a global financial center, the UK Financial Conduct Authority (FCA), in partnership with the Bank of England (BoE), began consultations on developing a regulatory framework for stablecoins. These consultations were informed by the directives that the FCA would be responsible for regulating the country’s crypto environment. At the same time, the BoE would be tasked with overseeing the operations of stablecoin providers that could impact the UK’s financial systems due to their market size and reach.
● July 2023 – the UK’s Law Commission overhauled domestic crypto laws by introducing four major recommendations that would make it possible for the country to recognize cryptocurrencies and stablecoins as regulated financial activities.
Twelve months after this historic move by the UK Law Commission, we anticipate a final regulatory framework for crypto companies and cryptocurrencies being unveiled. However, this may not be guaranteed due to the upcoming general elections, which are likely to take place in the second half of 2024.
The Labour Party is currently favored to win the elections and has already expressed uncertainty about the crypto regulations. If the Labour Party takes over power from the ruling Conservative Party, delays or revisions of the regulations before approval may be the outcome. Should this become the case, the UK cryptocurrency industry might suffer the same fate as the US crypto market, which is losing crypto users to other jurisdictions due to uncertainty of regulations in the country.
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