IRSG response - HMT future financial services regulatory regime for cryptoassets
03 May 2023
The group supports a positive approach towards cryptoassets, whilst being mindful of risks. Moves for the UK to build a robust regulatory regime for cryptoassets in collaboration with industry are to be welcomed.
The IRSG welcomes HM Treasury's inquiry into a future financial services regulatory regime for cryptoassets. The group supports a positive approach towards cryptoassets, whilst being mindful of risks. Moves for the UK to build a robust regulatory regime for cryptoassets in collaboration with industry are to be welcomed. Achieving the right balance between fostering the right regulatory environment for cryptoassets to thrive, while protecting the interest of consumers, will require careful planning and adequate engagement with industry.The IRSG welcomes HM Treasury's inquiry into a future financial services regulatory regime for cryptoassets. The group supports a positive approach towards cryptoassets, whilst being mindful of risks. Moves for the UK to build a robust regulatory regime for cryptoassets in collaboration with industry are to be welcomed. Achieving the right balance between fostering the right regulatory environment for cryptoassets to thrive, while protecting the interest of consumers, will require careful planning and adequate engagement with industry.
The IRSG response focuses on:
- Clarity around definition: as the future regime begins to form it will be critical that definitions of activities and assets are made much more precise to give market participants clarity. It will be critical to ensure that the mere use of DLT technology in the lifecycle of an asset does not of itself impact the regulatory treatment of that asset, particularly as convertibility and even fungibility of digital and traditional securities might be seen in the future.
- 'Same activity, same risk, same regulatory outcome': The IRSG broadly supports an activities-based approach that would bring financial services performed with regulated cryptoassets within an appropriate regulatory perimeter. Care should be taken to ensure the principles of 'same activity, same risk, same regulatory outcome' as well as technology neutrality are reflected.
- Phasing: The delineation and interaction between the two proposed phases of regulation are broadly clear, however, clarification is still needed on (i) the specific assets and functions in the scope of each phase and (ii) the interaction between both phases. While there are advantages to a phased approach, this should be considered in the global context where other regulatory frameworks are being developed in many jurisdictions in parallel.
- Privacy: While the consultation addresses a broad range of technical financial regulatory issues, we would suggest that HM Treasury take this into account alongside the essential data considerations with cryptoassets. This includes not just non-personal data, but specifically the impacts for personal data, particularly in relation to KYC obligations and ultimate beneficial ownership, and concerning DeFi which is disintermediating institutional players and enabling individuals to transact in cryptoassets directly on a peer-to-peer basis.
- Global regulatory coherence: all considerations made for a UK future financial services regulatory regime should be made taking into account what other jurisdictions are developing in parallel - our response highlights the importance of global coordination and the use of common principles across jurisdictions as much as practical.
IRSG
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