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UK Government's Bold Moves on Crypto Asset Regulation

The UK government has released its response to the consultation on the future financial services regulatory regime for crypto assets. Here's a summary of the key points:

  1. Broad Support: The consultation received 131 responses, around 80% broadly supportive of the government’s overall approach.

  2. Regulatory Framework: The government intends to include crypto assets within the regulatory framework established by the Financial Services and Markets Act (FSMA), rather than developing a standalone regime.

  3. Specified Investments: Crypto assets will be included in the list of ‘specified investments’ in Part III of the Regulated Activities Order (RAO), requiring firms involved in crypto asset activities to be authorised by the FCA.

  4. Financial Instruments: The proposal leaves crypto assets outside of the definition of a "financial instrument" to avoid unsuitable and potentially onerous regulation.

  5. Key Concerns: Respondents raised concerns about the broad definition of crypto assets, the need for clarity on NFTs and utility tokens, and the distinction between permission and permissionless blockchains.

  6. Modifications and Actions: The government has modified the original proposals based on feedback, including providing further guidance on NFTs, utility tokens, security tokens, and the treatment of crypto assets that are already regulated.

  7. International Liquidity Pools: The government acknowledges the need to mitigate the fragmentation of crypto asset liquidity and will facilitate access to international liquidity pools under specific circumstances.

  8. Market Abuse Obligations: A modified approach towards market abuse obligations on crypto asset exchanges is proposed, acknowledging the need for staggered implementation for cross-venue data sharing obligations.

  9. Staking: The government plans to provide regulatory clarity on staking and has launched an engagement program with external stakeholders to inform this work.

  10. Phase 1 and Phase 2: The government updates timelines for Phase 1 and Phase 2 legislation and further information on the future FCA authorisation process for crypto asset activities.

This response marks a significant step towards establishing a clear regulatory framework for crypto assets in the UK, balancing innovation with consumer protection.

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