In this video, Andrew discusses how to understand and manage the cryptocurrency regulatory environment.

As cryptocurrencies spread across the globe, so do the regulations put in place to govern them. The crypto landscape is constantly evolving, and keeping up-to-date with the rules in different global territories is not an easy task. Understanding the ever-changing landscape, therefore, becomes a responsibility of all within the company, but especially those within the finance function.

The first thing that we should cover is why regulation? What is the purpose of regulation in this space? And what problem is a trying to solve? Much like regulation in traditional finance, the why boils down to financial stability, consumer protection, anti-money laundering, and counterterrorist financing. Each jurisdiction has their own approach to this, from the extremely severe, to the hands-off, and full-on embracing of the new market. Some countries like El Salvador have approved Bitcoin as a legal tender while others like China have already implemented stringent regulations, restricting cryptocurrencies and service providers. In this sense, regulations that are applicable to your business can be wide-reaching, and it will depend on where your business is established, where major decisions are made, and potentially where your customers and client base are. So, for this video, I will be focusing on the UK’s latest stance for regulating the crypto space, and the good news is that if you’re in the UK, based in the UK, the regulatory approach to cryptocurrencies has been relatively measured.

Regulation in the UK was started by the setup of the UK crypto assets task force of 2018, and this has continued to be developed further by the three task force authorities, The treasury, The Bank of England and the UK Financial Conduct Authority, The FCA. The task force have identified a series of objectives and principles to guide the government’s approach to regulating crypto assets. The three main objectives of the task force are to protect financial stability, to deliver a robust consumer protection, and to promote competition, innovation and UK competitiveness. This means continuing to encourage and support UK fintech firms and ensuring consumers and businesses have access to a variety of high quality services and products. The UK Regulators will be drawing on existing regulations and requirements where they are applicable. In doing so, the government will remain technology agnostic, but also consider whether the new technology gives rise to any additional risks. The UK government is therefore proposing to take an incremental phased approach to regulatory adjustments ensuring that the approach is agile, able to reflect its national discussions, and aligned to the future government approach to financial services and payments regulation.

So since 2018, the government and the UK authorities have taken a number of actions to address risks and support innovation. We’ve recently had another wave of regulatory publications from each of the arms of the task force, and these provide a clear signpost to those in the industry. So, the treasury has announced a package of measures to ensure the UK financial services sector remains at the cutting edge of technology, attracting investment and jobs, and widening consumer choice. As part of this package, stable coins will be brought within the regulation, paving their way for use in the UK as a recognised form of payment. If we turn to the Bank of England, they have a mandate to protect price and financial stability, and as such, have a vested interest in the potential regulation for cryptocurrencies as the market continues to grow at a rapid pace. The Bank of England’s Financial Policy Committee, The FPC, recently published a paper titled, Financial Stability in focus: Cryptoassets and decentralised finance. And they also put out a discussion paper on new forms of digital money. They continue to judge that direct risks to the UK Financial system stability for cryptoassets and decentralised finance is limited. However, the pace of growth potential for interconnections with the wider financial system, point to potential future risks. In line with their guiding principles, where crypto assets perform an equivalent economic function to one performed in the traditional finance sector, then that function should be left to exist under current regulatory arrangements, i.e a genuinely technology agnostic view, and that the regulatory outcomes should be aligned across technologies.

Finally, the FCA. They have been given regulatory powers that allow supervision of how crypto asset businesses manage the risk of money laundering and counterterrorist financing. Under this framework, UK crypto asset businesses must comply with the money laundering regulations, and register themselves with the authority. The FCA work closely with institutions in this space and recently published a notice to all regulated firms with exposure to cryptoassets. Essentially reminding those institutions of their regulatory requirements as it relates to crypto assets. So, as you can see, all arms of the task force continued to be active in this space, and are constantly looking for ways to ensure that the industry is regulated in the most effective and appropriate manner. This flow of output is only the beginning, as all parties will be held to account. In this sense, it is a responsibility of the industry to play its part. Regulated parties are most comfortable operated in regulated environments and overall, this should help more tentative risk appetites out there, get further over the line with regards to crypto engagement. All of this is positive in the UK crypto market. The net effect is the tangible acceptance that crypto in all formats is here to stay, and the constructive engagement on the topic is necessary.

This then begs the question of what should we expect next in the UK regulatory space? The measured approach, and to a degree, the technology agnostic stance means that changes to the regulatory space should be well signposted and remain transparent in the near future. For any company that is looking to play long term and establish themselves as a credible outfit, this approach is great news. There’s a clear need to cultivate technological innovation coming out of the UK. And for this, the innovators will need the regulators on their side.

Keep your company agile to these potential changes and you set yourself up for long-term success in this space by being a part of the regulatory change rather than fighting against it. Thank you.

A commercially minded Chief Financial Officer in the cryptocurrency and blockchain industry. I am a senior finance executive with a wealth of international banking, finance and risk management experience within bulge bracket institutions.

I am a natural communicator, a strategic thinker, and collaborative senior leader; accustomed to a fast-paced and challenging environment with a history of success.