UK Bill Advances to Regulate Digital Assets

UK Bill Advances to Regulate Digital Assets
The U.K. Financial Services and Markets Bill (FSMB), aimed at bolstering the country's financial services industry, underwent its third reading in the House of Lords on June 19. The legislation will now be returned to the lower house of parliament for further consideration of amendments. Notably, the FSMB introduces new regulations to encompass stablecoins and digital assets under the purview of U.K. financial services oversight.

Spanning 340 pages, the bill was initially introduced in July 2022 to leverage post-Brexit opportunities and grant domestic regulators greater authority over the U.K. financial system. The original version proposed to regulate stablecoins in accordance with the U.K.'s payments regulations. Subsequently, in October, an amendment was introduced to formally acknowledge digital assets within the framework of regulated financial activities.

The October amendment hinges on the definition of a "crypto asset," which is defined as follows:

"Any cryptographically secured digital representation of value or contractual rights that (a) can be transferred, stored, or traded electronically, and (b) employs technology supporting the recording or storage of data (including distributed ledger technology)."

Assets falling within this definition may be subject to the provisions of the Financial Services and Markets Act 2000 (FSMA), the existing legislation governing the U.K.'s financial markets.

According to parliamentary sources, the June 19 third reading of the FSMB is part of an effort to refine the bill, making minor adjustments to ensure its effectiveness. The House of Commons, the lower house of parliament, will now be responsible for guiding the bill through its final stages before it can be enacted as law.

One of the primary objectives of the FSMB is to empower U.K. regulators, specifically the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), to establish regulations pertaining to digital assets. The Treasury initiated consultations in February to solicit feedback on proposals, which include the establishment of an issuance and disclosure framework for digital assets, reinforcement of rules applicable to financial intermediaries and custodians of digital assets, and the adoption of a specialized market abuse regime for digital assets.

The consultation period concluded in April, and the Treasury is currently reviewing the received responses. If the proposals are implemented, digital assets would fall within the scope of the FSMA, with additional rules being incorporated or modified as necessary.

Anticipated to receive approval in the House of Commons, the passage of the FSMB into law would mark a significant stride towards establishing a comprehensive regulatory framework for digital assets in the United Kingdom.

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