As more and more mainstream businesses in the UK adopt cryptocurrencies, the exponential growth and market penetration have driven the demand for regulation in this industry.
Written by: News Publisher
Translated by: TaxDAO
UK Chancellor of the Exchequer Bim Afolami plans to introduce new laws to regulate stablecoins and cryptocurrencies, seeking to address the rapid development of the industry through licensing requirements, tax impacts, scrutiny of trading platforms, and robust security measures.
On April 15, 2024, at the Innovative Finance Global Summit, UK Chancellor of the Exchequer Bim Afolami announced plans to introduce new laws to regulate the issuance and use of stablecoins and cryptocurrencies in the country. This comprehensive regulatory framework is expected to be announced in July 2024, positioning the UK as a leader in regulating the thriving cryptocurrency industry.
The cryptocurrency industry in the UK is one of the fastest-growing cryptocurrency markets globally, surpassing Germany and the United States in growth after a decade of strong expansion. The widespread adoption of cryptocurrencies in the country and their feasibility as legitimate assets have resulted in over 3 million cryptocurrency users. It is estimated that the total cryptocurrency wealth of these users exceeds $3.72 billion. Additionally, the total revenue of the UK cryptocurrency industry in 2023 is estimated to be $1.9 billion, projected to reach $2.53 billion in 2024.
As more mainstream businesses in the UK adopt cryptocurrencies, this exponential growth and market penetration have driven the demand for regulation in this industry.
- What are the expectations for the new cryptocurrency law?
Today, from the latest currency facilitating online banking transactions to supporting the operation of online gambling, cryptocurrencies have impacted numerous industries. It is understandable that the UK aims to create a vibrant and secure cryptocurrency environment in the country by establishing clear rules for the operation of the cryptocurrency world.
At the Innovative Finance Global Summit, Bim Afolami stated that the final proposal for the system is actively being developed to ensure that regulations can be implemented as soon as possible. He added that many cryptocurrency activities will be brought under regulatory oversight for the first time. Some expected provisions may include:
Stablecoins, as a type of cryptocurrency pegged to the value of traditional assets or other cryptocurrencies, will require issuers to meet licensing requirements to mitigate concerns about potential financial instability in the market.
Clear tax implications for staking, where cryptocurrency owners collateralize their assets to facilitate transaction validation on blockchain networks and safeguard consumer rights.
Stricter scrutiny of the buying and selling of digital assets on cryptocurrency trading platforms to prevent criminal activities in the cryptocurrency environment. These platforms may be subject to Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols similar to traditional financial systems.
Custodial service providers offering compensated storage of cryptocurrency assets will need to implement robust security measures to protect users' assets from cyberattacks and other threats.
The UK Chancellor of the Exchequer confirmed that the UK's goal is to attract businesses and investors to enter this rapidly growing industry while ensuring that consumers in the country are protected from financial risks and fraudulent activities.
- Legislative journey of the UK cryptocurrency ecosystem
According to data from the UK Financial Conduct Authority, only 42% of UK adults had heard of cryptocurrencies in 2019. However, by 2022, 91% of UK adults were aware of cryptocurrencies. Additionally, the UK government expressed its intention to regulate the cryptocurrency industry in 2022.
Early 2022 - UK Prime Minister Rishi Sunak announced that the government plans to drive the UK's financial system to support cryptocurrency institutions and transform the UK into a leading global financial center. He emphasized the focus on supporting the operation, investment, innovation, and scalability of cryptocurrency and companies.
February 2023 - In response to the government's agenda to transform the UK into a global financial center, the UK Financial Conduct Authority (FCA) collaborated with the Bank of England (BoE) to begin negotiations on developing a regulatory framework for stablecoins. These negotiations were conducted in accordance with the FCA's directive to regulate the country's cryptocurrency environment. Meanwhile, the Bank of England would oversee the operations of stablecoin providers that could impact the stability of the UK financial system due to their market size and influence.
July 2023 - The UK Law Commission approved four proposals to drive comprehensive reform of domestic cryptocurrency regulations, potentially categorizing cryptocurrencies and stablecoins as regulated financial activities in the country.
Twelve months after taking this historic step, the UK is expected to announce the final regulatory framework for cryptocurrency companies and cryptocurrencies. However, this may not be guaranteed due to the upcoming general election (likely to be held in the second half of 2024).
The Labour Party is currently poised to win the election and has expressed a negative stance on cryptocurrency regulations. If the Labour Party takes over from the ruling Conservative Party, it could lead to a delay or modification of the aforementioned regulations. In such a scenario, the UK cryptocurrency industry may suffer a fate similar to the US cryptocurrency market, as cryptocurrency users seek other jurisdictions due to regulatory uncertainty in the country.
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