HM Treasury launches consultation on future financial services regulatory regime for cryptoassets

HM Treasury has launched a consultation and call for evidence setting out its vision for a future regulatory regime for cryptoassets (the Consultation). This marks a significant step towards placing the UK financial services sector at the forefront of digital innovation, whilst managing risks to consumers and capital markets generally. The Consultation follows similar initiatives elsewhere, most notably the landmark EU Markets in Crypto-Assets (MiCA) Regulation which was introduced earlier in 2022.

HM Treasury plans adopt a phased approach to regulation of cryptoassets. The first phase will involve introducing a regime for the regulation of fiat-backed stablecoins which are used for payments. This follows relevant announcements made earlier in 2022. The second phase will cover broader activities such as investment or trading services.

Broadly speaking, the intention is to bring cryptoassets within the scope of the UK financial services regulatory regime by introducing targeted amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) and specifying a number of cryptoasset-related activities which will be subject to regulation going forward. This will include activities such as issuance, payment, exchange, investment and risk management, lending – borrowing and leverage activities, safeguarding and/or administration as well as validation and governance activities.

Importantly, HM Treasury has highlighted its intention to regulate all providers offering cryptoasset-related services to UK customers, whether based in the UK or overseas.

The consultation is open until 30 April 2023.

HM Treasury has also confirmed its approach to cryptoasset financial promotions. On a temporary basis, cryptoasset exchange providers or custodian wallet providers registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 who are not FCA authorised, will be able to communicate their own financial promotions in relation to qualifying cryptoassets. The FCA will have power to make rules about these financial promotions.

Our Digital Assets team at DLA Piper will be responding to the consultation and putting together a detailed outline of the proposed rules. If you have any questions, please contact a member of our team.