UK Set to Pass Sweeping Regulation for Bitcoin Industry
After a long period of planning, the UK’s Treasury is set to go on sweeping legislation for Bitcoin-related businesses. The Treasury will move to make these plans law starting in 2024.
After several months of planning and deliberation, the British government has released its finalized plans for a new wave of regulation in the digital
asset industry, covering a broad range of topics from exchanges and all custody-related firms to stablecoins and more.
The Treasury published these plans on October 30, and claimed that it intended to formally introduce the relevant legislation in 2024. The initiating event for these proposed new regulations was the FTX collapse of 2022, as the government specifically called attention to this crash when it first began planning these new regulations in February 2023. Although these plans were initially spurred on by something of a disaster for the industry, those responsible have repeatedly stressed that they wish to work with the world of Bitcoin and cryptocurrency for future economic opportunities.
Andrew Griffith, economic secretary to the Treasury and author of the report, made comments to this effect both in February and October, first announcing that, “We remain steadfast in our commitment to grow the economy and enable technological change and innovation — and this includes cryptoasset technology…But we must also protect consumers who are embracing this new technology — ensuring robust, transparent, and fair standards'.” When he spoke to the press announcing that the plans were complete, he claimed to “look forward to our continued work with the sector in making our vision a reality for the UK as a global hub for cryptoasset technology.”
It’s this notion of Britain as a global hub that particularly seems to interest the British government. For decades now, one of the UK’s greatest economic strengths has been its longstanding financial hubs, which are able to bridge several gaps; both from non-European powerhouses entering the European market as well as from former colonies sustaining economic relationships for trade deals and lines of credit. As Bitcoin has become increasingly accepted in the world of international finance, it makes sense that the same general policies would be extended towards the extended digital assets industry. For example, in this same month Britain’s Financial Conduct Authority has entered into a partnership with the central bank of its former colony, Singapore, to facilitate crypto-related cooperation between these two countries. The revenue of the digital asset industry (in billions of dollars) is currently growing higher in the UK than any other major national market, and by all accounts they intend to keep it that way.
The actual text of these regulations is quite long, at 94 pages, and it covers quite a range of topics; the existing regulations over the entire industry, possible implications at regulating not only exchanges but other custodying businesses like lenders, custodians and intermediaries, the state of decentralized finance and cases of market abuse, sustainability and many others. Additionally, the Treasury seemed to take a specific interest in fiat-backed stablecoins, releasing a separate report covering this topic. Considering that the FTX collapse is what precipitated this interest, it seems straightforward that stablecoins would be highly relevant.
Several notes were repeatedly hammered in these proposed new regulations: Their aim must always be to ensure maximum protections for customers and clarity for business innovation, and that they must foster the UK’s status as a global crypto hub.
It must be noted that the British government’s vision for a profitable industry may not match up with Bitcoiners’ view of a thriving community. For example, although most of the actual proposed legislation targets firms that would have dealings with Bitcoin, there’s one new law that directly impacts Bitcoin itself: Law enforcement agencies having broader powers to “seize, freeze, and recover” digital assets, and additionally to “convert them into money before a forfeiture hearing has taken place.” Although the regulations proposed in the Treasury’s documents are only proposals that haven’t even entered the legislature yet, these new powers ascribed to law enforcement are already fully in effect. Considering that the US government quietly acquired a stockpile of $5 billion worth of Bitcoin by similar seizures, it certainly seems worrying that the British government has copied the power to take this kind of money, but has streamlined the process of selling them off beyond the American system. If British law enforcement can dispose of seized assets without a forfeiture hearing, it could turn them into cash well before ever accumulating a massive stock. How often will that power be used? And what does it mean for those Bitcoiners who are more concerned with a vision of decentralized currency than the British financial system diversifying its revenue streams?
In other words, although this news could seem positive for Bitcoin, it’s very important to remember why exactly these rules are being proposed. The real goal for the Treasury is the economic prosperity of Britain, which naturally includes a powerful and dynamic financial industry and continued success for the British pound. Bitcoin has become such an international powerhouse that the Treasury cannot in good conscience hinder its financiers’ ability to invest, but that is not the same thing as hoping that Bitcoin itself will be strong. If nothing else, these proposals continually make reference to a broader world of digital assets, while the leader of this world, Bitcoin, is only mentioned by name 3 times in the 94 page report. These regulations argue that it is in everyone’s best interest to make sure that bad actors don’t attempt to hurt the users of Bitcoin. The difficulty lies within defining what exactly makes a bad actor and who gets to enforce it.
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