Industry heavyweights respond to UK’s crypto asset regulatory framework proposal

The deadline to submit comments and evidence to a consultation paper released by the UK Treasury on the proposed crypto-asset regulatory framework is fast approaching. The long-awaited paper published in February elicited detailed responses from various cryptocurrency industry players.

Blockchain provider Polygon Labs, venture capitalist Andreessen Horowitz (a16z), the European Financial Markets Association (AFME), and the Digital Pound Foundation (DPF) released their responses to a request for comment on May 1. Amidst these diverse voices, some common issues were raised.

The Treasury Department’s demand for “same risks, same regulatory consequences” was well met, but there was a lack of clarity about what that entailed, except based on the Financial Services and Markets Act 2000. There was no unified understanding. California-based a16z said the US Securities and Exchange Commission relied on the Howey test when evaluating the UK proposal. In that response, a16z I have written:

“It is encouraging to recognize that the Treasury Department’s interpretation of this principle does not mean that exactly the same form of regulation is appropriate to apply in all cases to achieve the same regulatory outcome.”

This is coupled with proposals that focus on regulating activities rather than the assets themselves. The fundamental difference between centralized finance (CeFi) and decentralized finance (DeFi) was central to this discussion.polygon I have written:

“The sources of risk in DeFi systems are very different from centralized systems such as CeFi and traditional financial systems. Updating might be more accurate. ”

The proposed framework treated fiat-backed and algorithmic stablecoins differently, classifying algorithmic stablecoins as “unbacked crypto assets.” In this case, Polygon specifically favored an activity-based regulatory approach.

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AFME worked with consulting firm Clifford Chance to respond. I got it The importance of a global taxonomy of crypto-assets for effective international regulation and a “same activity” approach to eliminate blockchain-based expressions of value such as loyalty and reward programs.

1/ @a16zcrypto Submitted our response to the UK @HMTreasury Consultation on “Future Financial Services Regulatory Regime for Crypto-Assets”. We strongly support the UK’s approach to a “balanced and focused, agile and flexible” regime. . . https://t.co/rT85Xfd8so

— Brian Quintenz (@BrianQuintenz) May 1, 2023

AFME has also identified the territorial scope of the proposed crypto regulation, written to apply to businesses serving UK citizens. He points out that this is broader than traditional asset regulations.

DPF recognized We may deviate from the “same risk, same regulatory outcome” principle in dealing with some forms of cryptoassets, and comment on them in detail. The classification of stablecoins was one point the company thought needed clarification in this regard.

The UK Government has responded to the collected responses received to the paper and, as a next step, intends to hold further consultations if specific rules are ‘advanced’.

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