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.
Business
Vivergo: How US-UK trade deal could bring about collapse of huge renewable energy plant in Hull
The smell of yeast still hangs in the air at the Vivergo plant in Hull but the machines have fallen quiet.
More than 100 lorries usually pass through here each day, carrying 3,000 tonnes of wheat. It is milled, fermented and distilled. The final product is bioethanol, a renewable fuel that is then blended into E10 petrol.
This is a vast operation. It took several years to build, with considerable investment, but it is on the verge of closing down. Management and staff are holding out for a last-minute reprieve from the government but time is running out.
It’s been a turbulent journey. The plant was already being annihilated by US rivals, losing about £3m a month. Vivergo and Ensus, based in Teesside, blamed regulations that enable US companies to earn double subsidies.
They were pushing for regulatory change but then a killer blow: The US-UK trade deal, which allows 1.4 billion litres of American ethanol into the UK tariff-free (down from 19%).
“We’ve effectively given the whole of the UK market to the US producers,” said Ben Hackett, managing director at Vivergo.
“If we were to have the same support that the US industry has, if we could use genetically modified crops, we wouldn’t need that tariff. We would be able to compete. If we had the same energy costs. We wouldn’t need those tariffs.”
The government has the weekend to come up with a plan that could keep the business running. If it fails, Vivergo will begin issuing redundancy notices to its 160 staff.
Ben Hackett
It’s a devastating prospect for workers, many of them live in Hull and are nervous about alternative opportunities in the area.
Mike Walsh, a logistics manager who has been working at the plant for 14 years, said: “It’s not a great place to be at the moment. It’s a very well paid, very high-skilled role and they’ve (Vivergo) given everybody an opportunity in an area that doesn’t pay that well…. The jobs market isn’t as good as what people would like. So it does impact the local economy.”
He called on the government to “help us, save us, give this industry a future”.
His colleague Claire Wood, lead productions engineer, said: “I moved here after a career in oil and gas for 10 years, partly because I want to be part of the transition to renewable fuels. I can see so much potential here and it’s absolutely devastating to know that this place might be closed very, very shortly and that all that potential just goes away.”
Thousands more could be affected. Haulage companies may have to lay off truck drivers and farmers could also suffer a blow.
Vivergo makes bioethanol using wheat. That wheat is bought from farms from Yorkshire and Lincolnshire.
Claire Wood
The National Farmers Union has sounded the alarm, saying: “Biofuels are extremely important for the crops sector, and their domestic demand of up to two million tonnes can be very important to balance supply and demand and to produce up to one million tonnes of animal feed as a by-product.”
Another bioproduct is carbon dioxide. The gas can be captured and used to put the fizz in drinks or injected into packaging to preserve food.
If Vivergo and Ensus were to go, Britain would lose as much as 80% of its output of carbon dioxide. Supplies are already tight across Europe, meaning this decision could compound shortages across a range of sectors, from meat-packing to healthcare.
The industry is calling on the government to help. Vivergo says it needs temporary financial support but that the government must create a regulatory and commercial environment in which it can thrive.
It says rules that award double subsidies to companies that use waste product in their bioethanol must be changed. At present, these rules are being used by US companies that make ethanol from Uldr – a by-product of processing corn. They argue this is not a genuine waste product.
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Another option is to grow the market. Industry leaders are calling on ministers to increase the mandated renewable fuel content in petrol from 10% to 15% and for an expansion into aviation fuels. That would allow British companies to carve out a space.
The government has been locked in talks with the company since June.
It said: “We will continue to take proactive steps to address the long-standing challenges it faces and remain committed to a way forward that protects supply chains, jobs and livelihoods.”
However, the time for talking is almost over.
Mr Hackett said he had no idea how the government would respond but he was firm with his stance, saying: “In times of global uncertainty, losing that energy certainty and supply from the UK is a problem.
“I think what they’re missing out on is the future growth agenda. We’re the foundation on which the green industrial strategy can be built. We make bioethanol that today decarbonises transport. Tomorrow it will decarbonise marine. It will decarbonise aviation.”
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