Opinion: Azariah Nukajam, Head of Gemini Regulation and Compliance
The UK is at a critical time in its approach to the rapidly evolving digital assets sector.
The government has often spoken about solidifying its position as a financial powerhouse in the modern world economy and making the UK a “global crypto hub of the world.” However, policy development was slow, fragmented and ambitiously inadequate.
Hesitancy costs as fast as crypto and distributed finance (DEFI). Capital, talent and innovation are extremely mobile. The UK is risking losing ground to more aggressive jurisdictions such as the US and Singapore.
To remain competitive, governments must learn from their international peers and align their ambitions with their actions.
Bold ambitions and slow delivery
The Financial Conduct Authority (FCA), the UK Financial Services Regulatory Authority, and the UK government must work together to support the growth of the space and ensure that these rules are adhered to and achievable. The UK government is responsible for establishing legal frameworks, but the FCA provides guidance and timelines on how to implement and enforce these rules and adhere to them.
Clear and progressive laws are essential to any healthy market. A contrasting example is the previous US administration that took a “regulated by enforcement” approach to regulating the crypto industry without a clear institution defining governed rules.
The UK government recently proposed a draft Statute Bill (SI), a framework for future ideas to regulate crypto assets that they hope to create a crypto-friendly environment within the UK. In theory, it is a significant milestone for the UK’s digital assets sector. But in reality, it’s just a simple step for many reasons.
Continuing debate among industry participants consistently highlights the slow pace of reform. The agency has long made it clear about the UK’s stance on the listed crypto products, and in August the FCA began retail access to crypto exchange trade notes. Meanwhile, the increasingly popular Crypto-Exchange Trade Funds (ETFs) remain banned.
Furthermore, concerns about Defi’s lack of definition of regulatory boundaries (a rapidly growing segment of the industry) make it difficult for crypto companies to navigate Defi and centralized financial (CEFI) boundaries.
Related: 40% of UK crypto users report blocking payments amid rising “consumer” practices
The proposed legislative and regulatory regulations require considerable reporting requirements, which burdens the corporate compliance team and undermines the privacy spirit associated with decentralization. An automated tax report to HMRC (UK tax, payments and customs authorities) is an example of this. Many argue that it discourages investors from using UK-based exchanges and pushes them to jurisdictions with more favorable taxes.
Unless governments take industry feedback seriously and tailor it to create an overall framework that balances consumer protection and innovation, there are risks left in the global crypto race.
Engaged regulators
Meanwhile, the FCA has adopted a more structured, engaged approach to the UK crypto sector, demonstrating its involvement with crypto companies to prevent market abuse and protect consumers while still remaining competitive.
Unlike governments that often seem reactive, FCAs are proactive and proactive. Roundtable hosting, canvas industry inputs and set up a step-by-step approach to regulatory development with a crypto roadmap. They also provide more detailed guidance on enforcing certain rules effectively, including consumer protection, market integrity and support for responsible innovation. Even if market participants do not agree with the FCA proposal, this is extremely important in an industry that values transparency and predictability and is key to giving UK crypto companies and investors confidence.
Nevertheless, the challenge lies with the FCA, ensuring that the rules are proportional. Large companies may be able to absorb the heavy compliance burden, but small startups may have difficulty following.
The path to crypto leadership
The good news is that there is still time to change courses. Other jurisdictions have already been decisively moved due to crypto regulations. The EU market in the Crypto-assets Regulation Framework provides clear and comprehensive rules run by companies, and with clear and genius, the US paved the way for global crypto control, and Singapore’s financial authorities have introduced a strict licensing process along with a regulatory sandbox and pilot approach. The advantage of the second mover allows the UK to learn from the experiences of others, but there are risks left behind if they don’t act quickly to address industry concerns.
Regulators have built a promising foundation and through greater coordination with government, bold ambitions and accurate implementation, the UK can build a fertile position and become a leader in the global crypto economy.
Opinion: Azariah Nukajam, Director of Regulation and Compliance at Gemini.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.