The U.K. government has unveiled strategies to regulate the crypto industry, focusing on reducing irresponsible business practices, such as practices that led to the collapse of the crypto exchange FTX last year.
The U.K. proposed several measures to put crypto businesses in line with traditional financial companies. Financial intermediaries and custodians storing digital assets for clients will be subjected to tighter guidelines for increased consumer protection.
"We remain steadfast in our commitment to grow the economy and enable technological change and innovation — and this includes cryptoasset technology," U.K. Treasury's new Economic Secretary Andrew Griffith said.
"But we must also protect consumers who are embracing this new technology — ensuring robust, transparent, and fair standards."
Last year, several major crypto companies declared bankruptcy, creating a ripple effect across the industry. It further worsened the state of digital assets, many of which already saw prices plummeting by more than half.
In many of these cases, crypto customers experienced difficulty in trying to get their investments back. There have yet to be clear regulations to ensure customers will regain their money following crypto companies' bankruptcies.
The U.K. government also noted many crypto companies' lack of operational resilience. Multiple crypto firms made risky loans and performed insufficient due diligence, leading to their demise.
FTX filed for Chapter 11 in November 2022, citing its liquidity crunch as the main reason. The crypto exchange's bankruptcy heightened the sense of urgency for global lawmakers to control the booming industry.
Later in the investigation, stakeholders learned that FTX then-CEO Samuel Bankman-Fried had used customer money to bet on crypto projects via his trading company, Alameda Research.
Companies with exposure to FTX reported losses, including major investment firms. Some of them have written off investments in FTX from their portfolios.
Many crypto firms still experience the impact of FTX's sudden implosion to this day. They see significant reductions in company valuations by investors. Layoffs are also happening in the crypto sector. Last week, English crypto exchange Luno laid off 35 percent of its workforce to reduce operational costs.
Per the plan, Britain will require crypto exchanges to become more transparent to their customer bases by publishing important disclosure documents. Exchanges must also publish clear admission requirements to participate in digital asset trading.
The government still aims to make crypto prosper in the U.K. by relaxing strict guidelines on crypto advertisements. According to the proposal, crypto firms registered with Financial Conduct Authority can roll out their own promotional campaigns.
"Having a regulatory roadmap or regulatory direction of travel is going to be super useful for the UK in terms of being a crypto hub."
Julian Sawyer, CEO of Zodia Custody
Zodia Custody chief executive officer Julian Sawyer said U.K.'s recent move would be "super useful" for the development of the crypto industry in the region. Despite that, he warned that the European Union had been ahead of Britain in planning for crypto regulation.
The British government will continue to consult on the best approaches to regulate crypto companies operating in the territory until April 30. After the consultation, Rishi Sunak's administration looks to formulate more detailed guidelines.
U.K. to become crypto hub
Britain has expressed its ambition to become a global hub for crypto and blockchain technology. The country, however, had to deal with chaotic leadership changes last year and the plan was put on hold.
Sunak, who took over the prime minister position in October 2022, is considered pro-crypto by market players. He declared his commitment to turning the U.K. into "the jurisdiction of choice for crypto and blockchain technology."
Following Brexit, the U.K. has the urgency to compete with the E.U. as a financial hub. Crypto provides an opportunity for the U.K. to stimulate its economy, which has stalled in terms of growth in recent years.
"There is an opportunity to provide clarity to the industry and allow it to play its role in achieving their mandate to encourage businesses to invest, to innovate, and to create jobs in the U.K.," Chainalysis head of U.K. public policy Jordan Wain said.