On 26 November 2024, the United Kingdom Financial Conduct Authority announced progress in developing a regulatory framework for cryptoassets. This follows insights gathered earlier in the year during a series of roundtable discussions involving over 100 organisations, including crypto exchanges, banks, trading firms, blockchain analytics companies, and other key stakeholders. The discussions also included government representatives, academics, and regulatory authorities such as HM Treasury, the Bank of England, and the United States Securities and Exchange Commission. The roundtables addressed key aspects of the proposed regulatory framework, focusing on admissions and disclosures, market abuse prevention, and trading platform regulations, with the aim of creating a balanced and effective system.
The United Kingdom Financial Conduct Authority is working to establish a regime that supports innovation while protecting investors and maintaining market integrity. Feedback from these discussions has provided crucial insights to help shape the proposed rules and ensure they address the unique risks and opportunities presented by the crypto market.
One key area of focus was admissions and disclosures, considered a cornerstone of the proposed regulatory framework. Proper disclosure to investors is essential for maintaining the integrity of crypto markets and enabling informed financial decisions. Participants in the discussions expressed broad support for an industry-led approach to admissions and disclosures, with rules tailored to meet the different needs of institutional and retail investors. However, challenges were highlighted, particularly in relation to decentralised cryptoassets, which have no central issuer. In such cases, compliance with disclosure and due diligence requirements may rely on publicly available information rather than direct engagement with an issuer, posing unique challenges for trading platforms.
Another significant area of discussion was the development of a market abuse regime for cryptoassets. Traditional market abuse regulations in the United Kingdom are designed to ensure financial markets operate efficiently and transparently. However, participants acknowledged that market abuse in crypto markets often manifests in novel and complex ways, requiring updated approaches. There was widespread agreement on the importance of considering the international nature of crypto markets, with participants highlighting the difficulties posed by varying data privacy laws across jurisdictions when sharing market abuse information. Differing views were also raised on how to apply traditional financial disclosure rules to decentralised cryptoassets, with concerns about potential challenges and unintended consequences.
The regulation of trading platforms and intermediaries was also a focus of the roundtables. The United Kingdom Financial Conduct Authority seeks to establish strong systems and controls to ensure fair, transparent, and efficient trading while recognising the unique characteristics of cryptoassets. Participants welcomed a distinction between retail and wholesale markets, particularly in areas such as customer protections, disclosures, and product offerings. The role of international standards was also emphasised as a means of promoting growth and reducing regulatory burdens. Discussions on “best execution” for client orders highlighted that price is only one of several factors to consider, with custody arrangements and asset safety also playing a critical role. Concerns were raised regarding conflicts of interest, particularly for exchanges that issue their own tokens or operate brokerage and market-making activities.
The United Kingdom Financial Conduct Authority has already made progress on several fronts. It is leading efforts to implement international regulatory standards through its work with the International Organization of Securities Commissions. The authority is also collaborating with HM Treasury and industry representatives to develop a platform for sharing information on market abuse, which will strengthen transparency and reduce risks.
These discussions and subsequent actions reflect the United Kingdom Financial Conduct Authority’s commitment to establishing a regulatory framework that supports innovation while safeguarding market integrity and protecting investors. By addressing the complexities of the crypto market, the authority aims to ensure that the United Kingdom remains a leader in financial regulation and innovation.
(Source: https://www.fca.org.uk/news/blogs/developing-our-approach-crypto-regulation)
