London, August 3rd 2023: The UK government should leverage the benefits of blockchain technology and innovate in the regulation of cryptoassets to develop new processes that can ultimately be applied in traditional markets, an Acuiti paper argues today.
Competitive Advantage: Charting the Path Ahead for UK Cryptoassets Regulation, which is released today in partnership with Portofino Technologies and Zodia Markets, argues that the UK should use its second mover advantage developing the rules after the EU has passed its regulation into law to create an environment that fosters innovation in cryptoassets.
The UK government has published a consultation paper and set out how it will seek to base as much as possible of the framework that governs cryptoassets on existing legislation. The Acuiti paper welcomes this approach and supports initiatives highlighted in the consultation paper that propose industry led approaches.
“The UK has the opportunity to develop a regulatory framework for cryptoassets that will increase economic competitiveness and fuel job creation and innovation while, at the same time, protecting investor interests and achieving secure and transparent markets,” says Will Mitting, founder of Acuiti.
“Where possible, regulations for institutional investors should be closely aligned with existing rules. There are, however, certain areas in which cryptoassets are distinct. The regulation of cryptoassets in the UK therefore needs to reflect these differences while allowing the market to evolve as efficiently and securely as possible.”
Areas in which regulations could leverage the innovations in cryptoassets to develop new processes that could be adopted in traditional markets include the policing of market abuse by venues and new custody models.
The UK is developing its framework for the governance of cryptoassets after the EU has already passed into law the Markets in Crypto-Assets Regulation (MiCA). While MiCA provides a comprehensive framework for the issuance and trading of digital assets, it was written prior to the events of 2022, which raised new areas of risk and considerations.
There is also a view the MiCA is too stringent in certain areas such as the ban on algorithmic stablecoins and requirements for firms offering custody of cryptoassets.
However, the UK’s approach has risks. The government plans to introduce new rules in two phases with the regulatory framework for the custody of most cryptoassets in Phase 2. Any delays in creating a regulatory framework around key areas of the market could hand the initiative to other jurisdictions that are seeking to establish themselves as hubs for cryptoasset innovation.
The Acuiti paper was based on a roundtable held in May with several key firms in the UK cryptoassets market as well as regulators.
The paper looks at two key angles that will inform the UK’s approach: its second mover advantage and how to develop different environments for retail and institutional investors and then explores how to optimise regulation for issuance, trading, lending and custody of cryptoassets.
To download the paper visit: https://www.acuiti.io/the-future-of-uk-cryptoasset-regulation
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