FTX exchange has had a profound impact on the entire cryptocurrency market. The exchange, currently undergoing bankruptcy proceedings, has left millions of affected users with losses estimated at billions of dollars. The UK government, specifically Financial Services Minister Andrew Griffith, has just announced plans to tighten regulations on cryptocurrency exchanges, seemingly in direct response to recent events.
According to recent statements by Minister Andrew Griffith, the government intends to subject centralized cryptocurrency exchanges to regulations similar to those already governing payment services. Services based on third-party asset management and cryptocurrency lending are expected to follow a similar path. The new legislation will propose a set of requirements related to accepting cryptocurrency assets onto a platform offering them for exchange, conducting an initial public token offering, executing token payment transactions or fund transfers, arranging transactions on behalf of third parties, overseeing funds, transactions related to so-called "cryptocurrency mining," operating a blockchain node, and finally, operating a platform providing these services. According to initial announcements, companies operating in the UK or providing services within the UK will be subject to a separate licensing process, including capital and liquidity requirements.
In January 2021, a public consultation with market participants began in the UK on the regulations covering so-called "stablecoins"—cryptoassets whose value mirrors a chosen fiat currency or other asset one-to-one. Due to recent events, the decision was made to expand the scope of the consultation. The current legislative plan calls for the issuance, payment processing, and oversight of stablecoins to be presented as part of "phase one." The next step will be the issuance and oversight of other types of cryptocurrencies (of course, security tokens are already covered by existing regulations) and the provision of exchange or sale services for both stablecoins and other assets. The Financial Conduct Authority, the body responsible for the UK payment services market, will conduct a three-month consultation with key players in the blockchain landscape, covering the regulations proposed for phase two. These consultations will culminate in a detailed legislative proposal, which will be reopened for broader public review this time.
The announcement of tighter regulations in the British Isles is consistent with the global trend of tightening regulations governing the blockchain sector. Although market capitalization has fallen from nearly $3 trillion to below $1 trillion over the past year, the largest jurisdictions are consistently moving in the same direction. It's worth mentioning the MiCA regulation, which is currently being finalized and will cover the entire European Union. On the other hand, across the pond, key proceedings are underway to define utility and security tokens. The US Securities and Exchange Commission (SEC) is currently waging a legal battle against Ripple Labs , the entity responsible for the XRP token, one of the top ten largest cryptocurrencies in the world. I believe that 2023 could prove decisive for the future shape of the cryptocurrency market. The European Union, the United States, and the United Kingdom will present their approaches to cryptocurrencies, and other significant markets will likely follow suit.
This alert is for informational purposes only and does not constitute legal advice.
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