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UK parliamentary committee reported on cryptocurrency regulation in the UK earlier this week. Corporate Partner Daniel Livingston and I discuss the implications of the report and why the UK and Australia are still playing catch-up in the international cryptocurrency market.
It was reported to the UK parliament this week that sweeping changes are required to the regulation of the ‘wild west’ cryptocurrency market.
The report stressed the urgency of the need to update UK laws on cryptocurrencies, and advocated for an approach in the short-term that involved bringing cryptocurrencies within the scope of existing laws and regulations. This would then buy time to introduce a series of legislative changes aiming to regulate cryptocurrencies as a distinct asset class within their own framework.
Bringing the assets within the scope of existing laws suggests that the UK will (for the foreseeable future) take a similar approach to that of the United States, whose regulators have stated that existing securities laws apply to ICOs. Australian regulators have opted for a sit on the fence approach, stating that the nature of the crypto-asset will greatly affect its treatment at law, and may constitute a variety of different financial products, currency or other asset class with very little practical guidance given.
The parliamentarians highlighted the volatility of the cryptocurrencies market, which recently suffered a crash that analysts have described as greater than the dotcom crash. Other concerns raised included the potential for cryptocurrencies to be used for money laundering and terror financing, and fraud.
The report also struck a positive tone, with suggestions being made that the UK could become a ‘global centre’ for cryptocurrencies with the introduction of the right regulation.
Seeking to capture the growing cryptocurrencies market has become an emerging story of Brexit Britain, especially as European rivals (such as Switzerland and to a lesser extent France, and Malta) have thus far outpaced the UK in adapting to the industry.
From our perspective, the UK authorities have some ground to catch up on international rivals (particularly Malta), as regulators and law makers in different countries continue to take starkly differing approaches to regulating cryptocurrencies. We share a similar view with the authorities and regulators in Australia.
There is still time for jurisdictions like the UK and Australia to catch up to the international pace-setters. However, for now, both the UK and Australia are unlikely to become jurisdictions of choice for exchange operators, those seeking to issue a cryptocurrency or other industry players.