Regulation of the cryptocurrency market in the UK could take around two years to introduce, an analysis suggests.
James Kaufmann, Legal Director at law firm RPC, says a two-year timeframe is based on a best-case scenario where proposals in last month’s House of Commons Treasury Committee report on crypto assets start to be progressed.
He points out that 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 on home reversion plans for the regulation to come in force.
HM Treasury need will to assess which specific crypto activities need regulating, draft proposed regulations and, after a consultation period, publish changes and set an implementation date.
“Even if MPs’ 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,” says Kaufmann. “Bringing a complex and fast evolving area like cryptocurrencies into a regulatory framework is going to be a difficult and lengthy process.”
According to RPC, the introduction of new regulations would result in a substantial expansion in the role and remit of the Financial Conduct Authority (FCA). This could raises questions over whether the FCA has the capacity and funding to handle the expansion of its role, has the requisite expertise to regulate the sector, and is prepared for how cryptocurrency markets may react in response to regulations.
The Treasury Committee report suggests the first jurisdiction to implement a workable regulatory regime for cryptocurrencies could gain a head start in establishing markets needed to freely trade 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 race to establish a workable and regulated regime for cryptocurrencies is surely worth winning as their usage becomes more widespread across Europe and globally,” says Kaufmann. “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.”