Recent Crypto Regulatory developments in the UK

The recommendations published by the UK Crypto and Digital Assets All Party Parliamentary Group (APPG), signal that yet another jurisdiction is taking significant steps to regulate the crypto asset industry. With SEC lawsuits in the U.S. looming large in the background, and prominent crypto exchanges such as Coinbase and Kraken seeking to expand their service elsewhere, the timing of the UK’s efforts to become a crypto hub is of great significance.

Confidence in the UK as a financial centre is long established, with crypto venture capital firm a16z opening an office in London on the basis that Britain is providing a “predictable environment” for crypto regulation. However, these are early days, and critical challenges will need to be overcome. The recommendations relayed by the APPG outlined a number of regulatory areas that need further consideration.

System of Regulation

The UK must determine exactly what framework it intends to regulate crypto assets under. Previously, it had been mooted to regulate the industry through something akin to gambling legislation. Such a system would aim to protect consumers of crypto assets via safeguards such as mandatory customer fund segregation and strict advertising standards.

On the downside, this model could lead to higher compliance costs associated with these protections which may prove too burdensome for smaller firms, leading to market consolidation and the establishment of a few dominant firms.

Conversely, the UK will no doubt