- The Crytoasset Taskforce
- Why the new regulations?
- The Report
- Who will be affected?
- Cryptocurrency UK – The future
- EU and Cryptocurrencies
- Cultivating civilized crypto
- UK Jurisdiction Taskforce
- Bitcoin and digital currencies
- UK Central Bank
A supervised, restricted and regulated cryptoasset environment goes against the original concept of the cryptocurrency as well as the innovation behind it.
The United Kingdoms Financial Conduct Authority (FCA) will be banning the sale to retail consumers of finance products that reference crypto assets from January 6th, 2021.
The Cryptoassets Taskforce
‘The authorities will keep their approach to cryptoassets and DLT under review to ensure the UK continues to support innovation while maintaining safe and transparent financial markets.’Cryptoassets Taskforce: final report
In other words:- The authorities will keep their approach to cryptocurrencies and blockchain under review to ensure the UK continues to restrict innovation to the areas that benefit the current regime while maintaining a nanny state and control over financial markets. The FCA describes its activity as –
The FCA’s regulation aims to protect consumers from harm, protect and enhance the integrity of the UK’s financial services sector, and promote effective competition in the interest of consumers.Cryptoassets Taskforce: final report
Therefore, they clearly admit that their interests are in protecting and enhancing the UK’s financial services. Promoting effective competition to the instituted financial system, whether or not it is in the interest of consumers, could be contradictory to protecting the conventional financial services. Therefore they are by admission against the fair competition to the UK’s established financial sector.
The UK’s Cryptoassets Taskforce published The Final Report on July 30th 2018. The Taskforce consisted of members from the Bank of England, the FCA and HM Treasury due to concerns over financial crimes and money laundering. Therefore, it seems that the cat is in charge of the cream. The autonomous and biased nature of the investigative team might suggest that the decision is in favour of the established financial institutions, and that supposition would be correct.
Why The New Regulations?
The ‘Cryptoassets Taskforce’ believes that consumers are unable to appraise the value of risks of derivatives regarding specific cryptocurrencies. They also believe that cryptocurrencies are ripe for financial crimes and market abuse. They are concerned about the volatility in the cryptocurrency markets and that there is inadequate understanding by consumers of the need for crypto investment.
All this suggests that we have a reliable and trusted fiat financial system. We can trust that our banks will not use our financial assets to dig themselves out of trouble as was permitted in 2008 with the ‘too big to fail’ scam. We can believe that our banks are not involved in criminal activities and money laundering.
‘World’s biggest banks ‘allowed criminals to launder dirty money’, leaked documents allege.’Sky News September 2020
‘Dirty money: World’s largest banks failing to stop money laundering on a vast scale.‘euronews 21/09/2020
About the Report
Most of the Cryptoassets Taskforce report is an explanation of the crypto-world, the coins, alts and tokens as well as the blockchain. The report more or less dismisses the ‘cryptoassets’ as non-currency assets that have values and use, including those involving illegal activities. ‘Cryptoassets’ are not a currency; nevertheless, they must be regulated and taxed.
The main interest is in blockchain technology its ability to streamline the UK financial services. The Taskforce recognised that blockchain technology is still in its infancy, but want to encourage innovation in this area so that banks will be able to adopt reliable, cost-efficient technology.
Who will be affected?
This will affect companies that issue or create products connected to Cryptocurrencies.
A) firms issuing or creating products referencing cryptocurrencies
B) firms distributing products referencing cryptocurrencies, including brokers and investment platforms, and financial advisers
C) firms marketing products referencing cryptocurrencies
D) operators of trading venues and platforms
E) retail consumers and consumer organisationsCryptoassets Taskforce: final report
The list is curious in that it is so vague that it could mean anyone connected with cryptocurrencies in any way.
A, B and C use the word ‘referencing’ which suggests anything that refers to cryptocurrencies. The terminology is very dangerous as it can mean anything they want. For example, a product that references cryptocurrencies could be a T-shirt or baseball cap with a bitcoin logo. Whilst this may seem far fetched, mentioning Bitcoin or advertising Bitcoin t-shirts on Facebook can get you banned! Banning such products equates to censorship and goes against freedom of expression.
“Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.”Article 10 of the United Nation’s Universal Declaration of Human Rights
Crypto Currency UK – The Future
Currently, a cryptocurrency exchange operating within the UK must provide HMRC (Her Majesty’s Revenue and Customs) with User Date. From January 6th 2021, UK exchanges will also have to register with the FCA. There are no specific regulations for UK crypto-exchanges. They are categorised under the existing ‘Financial Regulations for Derivatives’ rule and like futures and options will require authorisation by the FCA. Other types of cryptocurrency businesses may qualify for an e-license.
Security tokens are fundamentally digital liquid contracts for fractions of any asset that has value in the ‘real’ world; therefore they will be subject to FSMA (Financial Services and Markets Act) and MiFID (Markets in Financial Instruments Directive).
Cryptocurrency exchanges, crypto wallet providers and cryptocurrency cash machines will be subject to AML (Anti-Money Laundering) laws.
Utility Tokens are not an ‘asset’, but instead, they are evidence of a purchased service and can be ‘spent’ within that closed system or sold on. ‘Rewards’ can be earned by loaning computer power to the companies super-computer. Calculation of the electrical costs will discover if the rewards received justify this expense. Payment and Utility Tokens are going to have their own bespoke ‘Markets in Crypto Assets’ (MiCA) regulations.
Stablecoin issuers, Cryptocurrency issuers and cryptocurrency service providers will require the following.
- A transparent and honest whitepaper
- To meet capital requirements
- Consent to third-party audits
EU and Cryptocurrencies
The EU is following similar lines and is looking to blend its regulatory path. Its immediate concerns are ‘Combatting the Financing of Terrorism’ (CFT) and ‘Anti Money-Laundering’ (AML) regulations that will also apply to cryptocurrencies, wallets and exchanges.
With that in mind, emphasis on CDD (Customer Due Diligence), by using Know Your Customer (KYC) practices. That is the checking of customer details, including an official documents photograph for identification.
The anonymity of DeFi (Decentralised Finance) has caused concern to Governments worldwide as it circumvents KYC practices and is, therefore, an excellent platform for financing terrorism and money laundering.
The new regulations will go a long way to improve investor confidence in unregulated ‘yield farms’, and there should be a reduction in unsecured funding arrangements and scams.
Article about CeFi/DeFi ’62 Plus DeFi Projects Dominate The Market’
Other news on Cryptocurrency in Europe ‘CHF20 Million Francs Huge Investment In Swiss Crypto Banks By New Investors‘ and ‘8 French Bitcoin ATMs Eliminated In A Shocking Crypto Crackdown.’
Cultivating Civilized Crypto
The crypto regulations are in direct opposition to the ideology behind the original formation of an international currency that is decentralised and transparent.
Crypto regulation is here and here to stay. Love it or hate it, the crypto world is merging with mainstream finances, and it will need to comply with the rules. Even so, these rules could be beneficial to crypto companies. For example, the lack of licensing by regulated authorities has caused crypto exchanges difficulties in obtaining UK bank accounts. In several instances, the Crypto-businesses have taken their business elsewhere.
UKJT (UK Jurisdiction Taskforce)
The FCA is not the only UK regulatory body tasked with the role of investigating cryptocurrencies. November of 2019, the UK Jurisdiction Taskforce published a report about cryptoassets from the perspective of British law.
According to this report, cryptoassets are property under UK common law and therefore should receive protection under the law. An individual’s rights may also remain intact through preservation orders and other injunctions (relevant for instances of insolvency and fraud).
The UKJT found that the FCA requirements referring to tokens confusing as not all ‘coins’ are created equal, even unregulated tokens will require transparency, a prospectus and certification regime. Stablecoins and ICO’s will need a case by case assessment that could be a legal nightmare.
However, the UKJT affirm that cryptoassets are subject to the supervision of the FCA regarding AML, Terrorist Financing and Transfer of Funds Regulations (2017), and crypto firms will need to carry out CDD.
Cryptocurrency industry is maturing in the UK
It is now possible to obtain an API license in the UK that enables a service provider to offer specified payment services like online payments and money transfers.
Bitcoin and Digital Currencies
From the beginning using Bitcoin as an investment rather than a currency is standard; therefore, it is hardly surprising that High Courts around the worlds only regard it as an asset.
The Bank of England is the United Kingdoms Central Bank. The former B of E governor Mark Carney (2013-2020) was initially pro-cryptocurrencies and didn’t see it as a threat to UK financial security. Still, towards the end of his appointment as Governor, he appreciated the difficulties of implementing a central bank digital currency in the UK.
“While CBDC (central bank digital currency) poses a number of opportunities, it could raise significant challenges for maintaining monetary and financial stability.”Mark Carney, Governor of the Bank of England (2013-2020)
Can Cryptocurrencies be purchased in the UK?
The new regulations centre around consumer protection, anti-terrorism funding and anti-money laundering. Therefore, the purchase of cryptocurrencies within the UK hasn’t changed. However, the regulations focus on the UK Crypto exchanges that will require more in-depth customer checks.
There is no customer protection in the event of a cryptocurrency collapse; whereas the UK Financial Services have a compensation scheme that covers fiat customers in such an event.
UK Central Bank
Before Andrew Bailey became the present Governor of the Bank of England (UK’s central bank), he was well known as a crypto-sceptic. His view of Bitcoin hasn’t changed.
“It’s a very volatile commodity in terms of its pricing… and I would caution the people we know relatively little about, what in a sense, forms the price of Bitcoin. It’s an odd commodity as well because the eventual supply is fixed.”Andrew Bailey 2017 BBC Interview
Whilst still anti-Bitcoin, his attitudes towards cryptoassets have changed since becoming the Governor of the Bank of England. He recognises the benefits as well as risks and challenges for those having authority over financial services.
“Firms…. should be subject to standards of operational, financial resilience that reflect the risks they pose with sufficient data available to monitor emerging risks.
… innovation is increasingly challenging regulators’ ability to ensure that these points are met.”Andrew Bailey Sept.2020 Webinar with the Brookings Institution
Mr Bailey continues to explain that any currency would only be acceptable for use in the UK if it is convertible into ‘sterling fiat money’ on a one-for-one basis. Therefore, this would be similar to ‘Tether’ and the US dollar.
Furthermore, in an agreement with the international community, it has been decided that no global stable coin project should begin until the legal regulations are in place; management systems become established, and the risks have been thoroughly assessed and countered.
The UK financial establishment is interested in blockchain technology and a digital future. What’s more, they haven’t had to invest a penny, since the innovative crypto industry has done all the research and development. The arrival of DeFi provides them with the excuse to take control of the blockchain through regulation. Also, the transparency of blockchain will give the governments business and private information, thereby excluding tax evasion.
Taming of the Wild-west
The opportunity to have an open and free monetary exchange has vanished. The lack of early consumer participation transformed Bitcoin from a currency into an asset. The world governing bodies have now seized the opportunity to make blockchain their own.
Governments around the globe recognise that the new digital era is here, and they are introducing changes to the established financial system. No doubt, further regulation is coming in the future as they integrate the new system.
The regulations will weed out the most undesirable elements of the network before they mature. The UK will undoubtedly abolish the anonymity of DeFi and will eventually introduce insurance against customer loses.
The new regulation will require staff acquainted with the system as well as the law, to administrate and enforce it, which will offset some of the financial gains obtained using blockchain.
There is still considerable ambiguity in the current regulation, so businesses and crypto investors would benefit from legal advice from the outset to avoid complications later.
Blockchain began with gleeful anticipation. One has to wonder if this brave new world will become regulated out of existence. But, love it or hate, regulation is here to stay.
Disclaimer: Opinions expressed at Bitcoin News Agency are not investment advice. Investors should do thorough research before investing in Bitcoin, digital assets or cryptocurrencies. Please be advised, transfers and trades are at your own risk, and any loses incurred are your responsibility. Bitcoin News Agency does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Bitcoin News Agency, an investment advisor. Please note that Bitcoin News Agency participates in affiliate marketing.
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