UK cryptocurrency regulations could take up to two years based on comparable regulatory extensions
UK regulation of the cryptocurrency market would take two years to introduce based on comparable extensions of the FCA’s remit.
James Kaufmann, Legal Director at RPC says that this based on the best-case scenario where proposals in the recent House of Commons Treasury Committee report* start to be progressed. The process of introducing the necessary regulations, along with the required consultation period, is lengthy.
Past precedents show it can take years to make relatively minor regulatory changes to the financial regulatory regime. For example, it took two and a half years from the Treasury's original announcement (10 May 2004) for the regulation of home reversion plans to come in force (6 November 2006).
To regulate cryptocurrencies, HM Treasury need will to:
- Assess which specific activities related to cryptocurrencies need regulating perhaps with market study
- Draft proposed regulations open to consultation
- After the consultation period has closed, publish changes and set an implementation date
James Kaufmann says: “Even if MP’s latest proposals were fast tracked, it could still take years for regulations to cover the UK cryptocurrency market that treads the middle ground between protecting retail participants and allowing the UK’s cryptocurrency market to thrive.”
“Bringing a complex and fast evolving area like cryptocurrencies into a regulatory framework is going to be a difficult and lengthy process. Added to this, big issues like Brexit are already occupying a lot of regulator’s time."
RPC says the introduction of new regulations would result in a substantial expansion in the role and remit of the FCA. This raises questions over whether the FCA:
- Has the capacity and funding to handle the expansion of its role
- Has the requisite expertise to regulate a sector as technically complex as cryptocurrencies
- Is prepared for how cryptocurrency markets may react in response to regulations
RPC note and agree with the sentiment expressed in the Treasury Committee report that the first jurisdiction to implement a workable regulatory regime for cryptocurrencies may gain a head start in establishing the markets needed to freely trade these assets.
The European Parliament has also recently called for cryptocurrencies to be regulated across the EU, with many proposals similar to parts of HM Treasury’s report. The proposals were published under a ‘Motion for a resolution on distributed ledger technologies and blockchains: building trust with disintermediation’.
James Kaufmann adds: “The race to establish a workable and regulated regime for cryptocurrencies is surely worth winning as their usage becomes more widespread across Europe and globally. The creation of a cryptocurrency trading hub may also have positive knock-on effects for businesses serving these markets, such as brokers, investment banks, and custodians as well as a potential increase in tax revenues for authorities.”* House of Commons Treasury Committee ‘Crypto-assets’, 12th September 2018