Author: Azariah Nukajam, Head of Regulatory and Compliance at Gemini
The UK is at a critical juncture in the rapidly evolving digital asset space.
As a financial powerhouse in the modern global economy, the UK government frequently talks about making the UK a "leading global cryptocurrency hub." However, policy development has been slow, fragmented, and lacking in sufficient ambition.
For fast-growing industries like cryptocurrency and decentralized finance (DeFi), hesitation is costly. Capital, talent, and innovation are highly mobile. The UK risks losing its competitive edge to more proactive jurisdictions like the US and Singapore.
To remain competitive, the government must match its ambition with action while learning from international peers.
The UK's Financial Conduct Authority (FCA) and the government should work together to support the development of this sector, ensuring that these rules are both adhered to and achievable. The government is responsible for establishing the legal framework, while the FCA implements and enforces these rules, providing guidance and timelines for compliance.
Clear and incremental legislation is crucial for any healthy market. A comparative example is the previous US administration, which took an "enforcement-led" approach to the cryptocurrency industry without clearly defining governance rules for the sector.
Recently, the UK government proposed a statutory instrument (SI), a forward-looking framework for regulating crypto assets, hoping to create a crypto-friendly environment within the UK. Theoretically, this is a significant milestone for the UK digital asset industry. However, in practice, it is only a modest step forward for various reasons.
Ongoing discussions among industry participants consistently emphasize the slow pace of reform; institutions have long awaited a clear stance from the UK on listed crypto products, and in August, the FCA opened access for retail investors to crypto exchange-traded notes. Meanwhile, increasingly popular crypto exchange-traded funds (ETFs) remain banned.
Additionally, concerns about the lack of defined regulatory boundaries for DeFi—a rapidly growing segment of the industry—make it difficult for crypto companies to navigate the line between DeFi and centralized finance (CeFi).
The proposed legislation and regulatory rules also require a significant amount of additional reporting, placing a burden on company compliance teams and undermining the privacy principles associated with decentralization. Automatic reporting to HM Revenue and Customs (HMRC) is one example, which many believe will deter investors from using UK exchanges and push them towards jurisdictions with better tax incentives.
Unless the government takes industry feedback seriously and adjusts to create a balanced framework for consumer protection and innovation, it risks falling behind in the global crypto race.
On the other hand, the FCA has taken a more structured and proactive approach to the UK crypto industry, indicating its willingness to work with crypto companies to prevent market abuse and protect consumers while maintaining competitiveness.
Unlike the often passive government, the FCA has been proactive: hosting roundtables, soliciting industry input, and developing a phased regulatory approach through its crypto roadmap. They have also provided more detailed guidance on the effective implementation of specific rules, including consumer protection, market integrity, and supporting responsible innovation. Even when market participants disagree with the FCA's proposals, this is crucial in an industry that values transparency and predictability, providing confidence to UK crypto businesses and investors.
However, the challenge lies in the FCA ensuring that its rules are proportionate. While larger companies may be able to bear the heavy compliance burden, smaller startups may struggle to comply, which could hinder their ability to operate in the UK.
The good news is that there is still time to change course. Other jurisdictions have already taken more decisive action on crypto regulation. The EU's regulatory framework for crypto assets provides clear and comprehensive operational rules for businesses, while the CLARITY and GENIUS acts have set the US on a path to global crypto dominance, and the Monetary Authority of Singapore has introduced strict licensing procedures along with regulatory sandboxes and pilot approaches. While the latecomer advantage will allow the UK to learn from others' experiences, there is also a risk of being left behind if it does not act swiftly to address industry concerns.
Regulators have laid a promising foundation; with better coordination with the government, bold ambition, and precise implementation, the UK can cultivate fertile ground to become a leader in the global crypto economy.
Author: Azariah Nukajam, Head of Regulatory and Compliance at Gemini.
Related: UK financial institutions pilot tokenized pound deposits in collaboration with six major banks.
This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “Opinion: The UK Needs Regulatory Clarity That Matches Its Ambition”
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