UK Proposes Stricter Regulations for Cryptocurrency Sector to Enhance Consumer Safety

The UK government has announced draft regulations for the cryptocurrency industry to improve consumer protection and investor confidence. Newly proposed rules will subject firms dealing with digital assets to stringent standards. This follows recent discussions with US authorities and aims to foster innovation while safeguarding users. The FCA is set to play a key role in these changes as the UK moves towards a revised regulatory framework.

In a significant move for the cryptocurrency sector, Chancellor of the Exchequer Rachel Reeves has unveiled draft regulations aimed at establishing clearer guidelines for digital assets in the UK. This announcement follows her discussions with US Treasury Secretary Scott Bessent, highlighting a collaborative effort to enhance innovation on both sides of the Atlantic. Such regulations come in the wake of varying approaches to crypto regulation from different US administrations, indicating a transatlantic shift in policy.

Historically, the UK’s stance on digital assets has been cautious. Bank of England Governor Andrew Bailey has been a vocal critic of cryptocurrencies, airing his doubts about their stability long before Reeves’ announcement. He notably questioned earlier government moves to explore a UK digital Pound – a sentiment reflecting the overarching wariness surrounding the crypto market.

The draft regulations propose that businesses dealing with cryptocurrencies like Bitcoin and Ethereum adhere to new rules aimed at boosting investor confidence. The government reports that ownership of crypto has surged among UK adults from 4% in 2021 to about 12%, prompting regulatory action to shield consumers from potential risks, scams, and bad actors.

Under the proposed framework, responsibilities will extend to crypto exchanges and dealers. These firms will have to adhere to stringent standards regarding transparency and consumer protection. The idea is to align the regulatory expectations for crypto firms closer to those of traditional financial institutions, in an effort to ensure operational resilience.

On the international front, Reeves announced plans for continued discussions between the UK and US through the Financial Regulatory Working Group. This initiative aims to encourage responsible growth within the digital asset sector. Furthermore, potential collaborations surrounding digital securities were mentioned, including SEC Commissioner Hester Peirce’s suggestions for a transatlantic sandbox, allowing for shared innovation in secure environments.

“Through our Plan for Change,” Reeves stated, “we are making Britain the best place in the world to innovate – and the safest place for consumers.” This showcases the UK government’s dual aim of fostering innovative fintech growth while providing protective measures for consumers.

A keenly awaited Financial Services Growth and Competitiveness Strategy is set to be unveiled on July 15, alongside a Mansion House speech from Reeves. This strategy will seek to boost the long-term growth of the financial services sector, with fintech identified as a focal point for future development.

The drive to regulate crypto has been simmering for some time. The UK’s foray into this realm began with a consultation on crypto rules in early 2021, initially focusing on stablecoins. The establishment of a taskforce by the Bank of England to explore a central bank-backed currency, dubbed “Britcoin,” underscores the UK’s proactive approach. Following the Treasury’s plans for enhanced authority for the Financial Conduct Authority (FCA), a clearer regulatory framework was seen as a pressing necessity in light of the volatile market.

In November 2024, the FCA articulated concerns that crypto remains largely unregulated in the UK, acknowledging its high-risk nature while outlining a regulatory timeline expected to roll out by 2026. This marks a critical juncture for the UK as it prepares to embrace a more structured and accountable approach to the cryptocurrency world, aiming to balance innovation and consumer safety.