UK Unveils 27-Page Draft to Regulate Crypto Industry

The UK government has recently published draft legislation aimed at establishing a comprehensive regulatory framework for the crypto industry. This move is part of a broader effort to drive growth in the sector while ensuring robust protection for investors. The draft, which spans 27 pages, outlines new definitions for various crypto assets, including stablecoins, and brings activities such as crypto custody and exchange operations under regulatory oversight.

According to the UK Chancellor of the Exchequer, Rachel Reeves, the new rules are designed to boost investor confidence, support the growth of fintech, and protect consumers across the UK. The draft legislation seeks to amend select orders of the Financial Services and Market Act, including Order 2001, which details regulated activities. Amendments to the Regulated Activities Order (RAO) aim to define qualifying stablecoins and crypto assets, classify them as specified investments, and regulate related activities.

Under the proposed regulations, crypto exchanges, dealers, and agents will be brought into the regulatory perimeter, ensuring that bad actors are held accountable while supporting legitimate innovation. Crypto firms with UK customers will also be required to meet clear standards on transparency, consumer protection, and operational resilience, mirroring the standards applied to traditional financial firms.

The latest draft legislation follows discussions between Reeves and the U.S. Treasury Secretary, where the pair explored greater collaboration on digital securities between the UK and the U.S. In 2023, a UK Treasury consultation outlined potential proposals for crypto asset regulation, including stablecoins. The government confirmed its intentions to implement these proposals last November and plans to bring forward final crypto asset legislation at the earliest opportunity, following engagement with industry stakeholders.

In February, the UK introduced a new crime bill that expanded powers for crypto seizures, reflecting the government's commitment to tightening oversight in the crypto sector. The draft legislation comes as crypto adoption surges in the UK, with around 12% of UK citizens owning crypto as of August 2024, compared to 4% in 2021. This surge in adoption underscores the need for clear and robust regulations to protect investors and foster growth in the sector.

The proposed regulations are a significant step forward in the UK's approach to crypto assets. By addressing key areas such as market abuse and stablecoin issuance, the government is taking a proactive stance to ensure that the crypto industry operates in a manner that benefits both investors and the broader economy. The move is also expected to enhance the UK's reputation as a hub for digital innovation, attracting more businesses and investors to the region. The draft legislation is set to be laid in Parliament, with the government aiming to finalize the rules in the coming months.