UK Government Responds To Treasury Committee’s Crypto Report

News, Regulation | December 21, 2018 By:

The UK government and Financial Conduct Authority (FCA) have released their responses to the Treasury Select Committee’s crypto-assets report.

In September of this year, the Treasury Select Committee published its report into crypto-assets as part of its Digital Currencies inquiry, an initiative launched in February 2018 in response to price volatility in the crypo market. At the time, the committee said that cryptocurrencies are a “Wild West industry” and need to be regulated to protect investors. The report called for the government to address the issues of poor security from hackers, volatile price swings, and anonymity that can aid crime.

In its response, the UK government said that it stands ready to empower the FCA to oversee all cryptocurrency assets. The government added that it will issue a consultation in early 2019 to further explore whether and how exchange tokens and related firms, such as exchanges and wallet providers, could be regulated effectively.

“To provide further clarity in this area the FCA will consult on perimeter guidance on the application of regulation to these tokens by the end of this year,” said John Glen, the economic secretary to the Treasury and City minister. “In addition, the government will consult early next year to explore whether other cryptoassets, that have comparable features to specified investments but that fall outside the current perimeter, should be captured in regulation.”

According to the government, it shares the committee’s concerns about the possibility of cryptoassets being used to facilitate money laundering and other illicit activity. As such, the government has asked the FCA to consider taking on the role of supervising firms in fulfilling their anti-money laundering (AML) and counter-terrorist financing (CTF) obligations.

Andrew Bailey, Chief Executive Officer of the FCA, said that they will not tolerate the use of cryptoassets for money laundering, fraud or criminal financing, and that money-to-crypto exchange firms and custodian wallet providers will be in scope of the Fifth Anti Money Laundering Directive (SMLD).

“As the government has indicated, they have asked us to consider taking on the role of supervising firms in fulfilling their AML/counter terrorism financing obligations but will seek views on this through consultation before confirming the identity of the supervisor,” Bailey said. “We are working closely with the government on transposition of SMLD.”

The government also recognizes the specific concerns raised in the committee’s report about the risks to consumers investing in tokens issued through initial coin offerings (ICO). However, the government also believes benefits could potentially develop in the future through the use of ICOs as a capital raising tool.

“As out lined above, the Government and the FCA will take steps to manage these risks and ensure the consistent application of regulation to all tokens that have comparable features to specified investments, regardless of how they are structured,” Glen said. “This will help to protect investors, eliminate fraudulent activity and ensure market integrity, w hi le allowing legitimate activity to thrive in the UK should ICOs prove to have benefits in the future.”

Bailey said that in the interim, the FCA will continue to monitor for potential breaches by those carrying out regulated activities without the appropriate authorization.

“Where firms issue cryptoassets which are similar to specified investments (e.g. shares) through initial coin offerings or other mechanisms, we want to ensure these are not structured so as to avoid regulation,” Bailey said.