The UK government is currently debating the regulation of cryptocurrency in the country. The issue has been a long-standing one, but it appears that there is increasing recognition that crypto should be regulated.
Crypto regulation in the EU
In June of this year, the European Parliament approved a new piece of legislation that will require cryptocurrency exchanges to carry out due diligence on their customers and report suspicious transactions to authorities. The bill also requires that exchanges maintain records for at least five years after transactions take place.
However, EU regulators still have some work to do before they catch up with those of Japan, which implemented its Virtual Currency Act (VCA) in 2017; or those in the United States, which introduced its SAFE Portfolio Integrity Rule (SPIR); or even China’s People’s Bank Of China (PBOC), which introduced its Payment and Settlement Law later that same year.
Increased transparency
Increased transparency is a big part of the regulation. Exchanges will have to provide information about their customers and operations, including details on transactions and investor accounts.
This increased transparency means that exchanges will be subject to routine audits by regulators, which will require them to report any suspicious activity in real time. This is a good thing for both consumers and investors because it will increase accountability and give customers confidence that they’re not being scammed by unscrupulous actors.
The same rules for crypto and fiat
The UK has been a forerunner in terms of recognizing crypto as a form of money and as an emerging asset class. The government’s first step towards legitimization came in March when the Financial Conduct Authority (FCA) released a series of statements which confirmed that crypto assets are not securities, commodities or currencies.
After that, the FCA announced new regulations for cryptocurrency derivatives trading platforms and other financial institutions engaging in such activities.
The latest move by the UK government to officially recognize cryptos as regulated financial instruments marks another milestone on their path toward full-fledged adoption by mainstream markets.
This could have significant implications for global investors who may now be able to hedge against risk through crypto investing with less risk than ever before. In case you are one of those investors, you can check some UK crypto wallets here: blog.tezro.com/best-crypto-wallets-uk/
Crypto-to-fiat exchange regulation
You may be wondering, what’s so different about crypto-to-fiat exchanges?
Well, they are regulated which means that they must follow KYC and AML procedures to ensure that their users are not breaking any laws or regulations. They must also comply with financial regulations and have a license to operate. To sum it up: exchange operators must be registered with the Financial Conduct Authority (FCA).
UK crypto derivatives classification
In the United Kingdom, derivatives are financial instruments that derive their value from the price of an underlying asset. They are used to hedge against risk and to speculate on the price of assets.
Derivatives can be classified as forwards, swaps, futures or options; different derivatives may have very different characteristics and risks associated with them. In particular:
- Forwards. An agreement between two parties to exchange a fixed amount of an asset for another fixed amount at a pre-agreed date in the future (the maturity date).
- Swaps. An agreement between two parties to exchange cash flows based on some initial nominal principal amount over a specified period of time at set intervals (typically quarterly).
Crypto exchanges are becoming more regulated.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) of the United Kingdom have both issued statements and regulations concerning crypto exchanges, requiring them to be licensed. This means that exchanges must obtain a license from either FCA or PRA if they want to do business in the UK.
The main requirement is that crypto exchanges are regulated by a financial institution like the Bank of England or the US Federal Reserve, which can ensure safety and security for investors. The second important requirement is that exchanges comply with anti-money laundering laws, which means they must perform checks on customers before offering them accounts at their exchange.
Conclusion
In summary, the UK has taken a big step in recognizing cryptocurrencies as a regulated financial instrument.
This means that exchanges will need to follow certain guidelines and be transparent with their customers about how their crypto holdings are protected. These regulations will also apply to derivatives on top of traditional cryptos like Bitcoin and Ethereum.
