Treasury reveals ‘world-first’ proposals to regulate cryptocurrency
The Treasury has revealed proposals to regulate cryptocurrency, following widespread calls for action after the spectacular collapse of one of the world’s largest trading exchanges.
Promising a “robust” approach to digital assets consistent with traditional finance, the government says it wants exchanges to have fairer and tighter standards.
Under the plans, crypto platforms would become responsible for defining the demands that a currency must meet before being admitted for trading.
Exchanges will also be held accountable for safely facilitating transactions and keeping customer assets safe.
It comes after the deputy governor of the Bank of England told Sky News that crypto trading is “too dangerous” to remain outside mainstream regulation.
Speaking in light of the sudden bankruptcy of crypto platform FTX, Sir Jon Cunliffe described the market as “incredibly volatile” and said investors needed more protection.
Some 80,000 UK-based customers were impacted by the collapse of the world’s second-largest crypto exchange, with one British investor left with a £1m hole in his finances.
FTX‘s disgraced founder, Sam Bankman-Fried, has since pleaded not guilty to stealing billions of dollars in customer money.
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‘Regulate crypto before systemic problem’
Are the government’s plans sufficient?
The proposals – which Labour said had arrived too far too late – come as the crypto industry seeks to regain the confidence of spooked investors.
Since FTX collapsed, wider market turmoil has seen Bitcoin, the world’s biggest token, fall to a five-month low and major exchange Coinbase cut 20% of its workforce.
Less than a year ago, Rishi Sunak, then chancellor, said he wanted the UK to be a “global crypto asset hub”.
Andrew Griffith, economic secretary to the Treasury, said the government was still committed to enabling crypto, but stressed the need to “protect consumers who are embracing this new technology”.
The plans will first be submitted to a consultation, but the Treasury claims the regulation will be a “world first”, suggesting it should arrive before the EU’s expected crypto legislation in 2024.
In the meantime, the Treasury announced it would be introducing a time-limited exemption to let more crypto asset companies issue promotions following a crackdown on “misleading” adverts.
Firms that are registered with the Financial Conduct Authority for anti-money laundering purposes will be allowed to while the broader regulation is being introduced.
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What is the main aim of cryptocurrency?
‘We’ve been waiting a long time’
Crypto fraud expert Louise Abbott, a partner at Keystone Law, welcomed the proposals.
She told Sky News that the lack of regulation in crypto made it “hugely attractive to fraudsters”.
“We have been waiting in this industry for a long time,” she said.
“I deal with fraud and have seen a dramatic increase in crypto scams and fraud in the past 10 years. Last year, I was getting daily enquiries from potential victims who have been defrauded through a crypto scam.”
Ms Abbot hopes the regulation could be in place as soon as the summer, adding that it was in the interests of both exchanges and investors for greater oversight of the market.
Major industry players including Binance chief Changpeng Zhao, who saw his platform banned in the UK in 2021, and Coinbase’s Brian Armstrong have previously welcomed the prospect of more regulation.
“Unless we become a safer environment, investors will not invest in the way we have seen,” Ms Abbot added.
Varun Paul, former head of fintech at the Bank of England, now of crypto infrastructure provider Fireblocks, also described the plans as a “positive step”.
He told Sky News that industry turmoil meant there was a need for “clear rules”, and expressed hope that the UK’s regulation would do the job while still encouraging innovation.
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The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.
The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.
It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.
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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.
The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.
It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.
Why?
The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.
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Bank of England cuts interest rate
It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.
The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”
In turn, mortgage providers are reluctant to offer cheaper products.
A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.
This expectation can influence what rates lenders offer.
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