From Ambiguity to Definite Clarity
A recent quote from the governor of UK’s central bank quite eloquently sums up the general attitude towards cryptocurrencies around the globe. According to him, “A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system.”
Authorities in several countries such as China and France are looking to adopt some kind of regulatory principle for cryptocurrencies. This is mostly because of their soaring values and the crypto related frauds and unlawful acts.
The EU cryptocurrency regulation which recently recognized and defined cryptocurrencies for financial and legal purposes has put up some broad regulatory norms. These norms have become the guiding force behind the different crypto regulations in Europe.
Also, the attitude of the regulators in the UK should be seen in this light. Increasingly the authorities in the UK are providing a clearer picture of the potential norms that can be introduced. However, for these to materialize some time is still required.
A Brief Background
The British government so far did not have any specific regulations relating to cryptos. For taxation purposes, they identified cryptos as unique entities that cannot be taxed at par with other assets. Instead, the tax on the income from crypto assets depended on the nature of the activities of the parties involved. That is to say, it depended on whether the parties were dealing with commercial or individual investment.
In 2018, the Treasury Select Committee published a report commenting on the government’s ambiguous stance on cryptos in the UK. According to the report, the ambiguity had proven to be a risk for the public at large. Further, the chairman of the committee, Nicky Morgan stated in the report, “This unregulated industry leaves investors facing many risks.” She went on to say that the government has to do more than issuing “feeble warnings” to the investors.
The report also proposed devolving more power into the hands of the financial authorities. This would help them have control over fraudulent advertisements like in the case of ICOs. According to the report, they should have enough power to control crypto to fiat exchanges.
The Financial Conduct Authority (FCA) of the UK also identifies and defines the legality of various forms of tokens. However, their identification is also ridden with ambiguities and is nowhere near complete. While it considers security tokens to be within their purview, cryptocurrencies are listed as exchange tokens. Further, utility tokens fall outside their oversight. Specific payment tokens which are pegged against fiat are considered to be similar to derivatives. As a result, they fall under their purview. Yet many other forms of tokens are left undefined.
FCA Cryptocurrency Regulation
The report also states the plans of the authorities to expand the ambit of FCA’s regulations. This will help it include all those currencies which are not presently regulated by the FCA. The Treasury will most likely propose this through the publication of a consultation paper. According to the report, transactions involving the exchange of crypto assets would have to abide by AML and counter-terrorism norms. These norms will be effective by the end of 2019.
It further indicates, that all parties involved in crypto exchange will be subject to some kind of licensing. This step will ensure greater safety. Moreover, this brings exchanges, payment providers, wallet providers, advisors, and even brokers under the net.
The virtual cryptocurrency regulation UK has made its first move in identifying the nature of the different kinds of assets and their legal standings. They have done this to do away with future confusions regarding their status.
The FCA noted that a security token refers to any asset which fulfills either of the two conditions listed here. It should either ensure ownership in an entity or a creditor relationship with a commercial entity. A security token also gives the right to own the profits. They can thus be compared to several other forms of traditional securities. Such as shares, debt instruments, and certificates and hold a similar status. The FCA concluded this based on the nature of tokens which hold the right to share the profits. They also have the property of exchangeability on an organized trading facility or an alternate market.
Meanwhile, they described exchange tokens as any token which is not issued or backed by a central authority. Further, they can be used for exchange on a peer-to-peer basis without the involvement of any intermediary. Moreover, a utility token provides the customers with any service/product immediately, or in the future, as per their definition.
Conclusion: Risk and Future of Crypto in the UK
The report, however, notes that the present threat by cryptocurrencies to the financial system is nominal. This is because the whole crypto sector in the country is very small. The crypto transactions in the UK account for merely 1% of the daily global volumes of transaction. The report nevertheless acknowledged that, in spite of the risks posed by the crypto assets, they could also have benefits. For instance, the reduction in cost and increased speed of cross border money transfers.
In this sense, Unbank, the world’s first decentralized bank on the blockchain seeks to alter the status quo. It aims to create a financial ecosystem that can derive the full potential of the core tenets of blockchain technology. Such as, speed, trustlessness, low transaction fees, and infallibility.
Through its network of business, it is leading the charge towards mass adoption of crypto. Regardless of whether one wishes to, or knows how to, spend cryptocurrencies, they can join the Unbank revolution. As it is immensely beneficial for all.
The attitude of the regulators in the UK seems to be positive. This augurs well for businesses like Unbank that are seeking to empower individuals through a unique financial system. It also reflects their willingness to create a regulatory regime which is not unnecessarily obstructive. Instead, the UK crypto regulation aims to provide a stable and safe trading environment for investors.
Learn more about cryptocurrency regulations around the world.
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