Her Majesty’s Treasury has finally released a highly anticipated consultation paper in preparation for the impending UK cryptocurrency regulation. The full 80-page paper covers a wide variety of topics, ranging from the challenges posed by algorithmic stablecoins to the concept of non-fungible tokens (NFTs) and initial coin offerings (ICOs).

The Treasury has stated that the recommendations aim to position the UK financial services sector at the forefront of cryptocurrencies and avoid the harsh control measures that have gained force around the world during the crypto winter. This is the intention behind the proposals.

The Treasury stated that there would be no separate regulatory system for cryptocurrency as it will be governed under the UK Financial Services and Markets Act 2000 (FSMA). The goal is to create an environment in which crypto and conventional financial systems compete on an equal footing. However the Financial Conduct Authority (FCA), which is Britain’s main financial regulator, will amend the laws set out by the FSMA to apply to the digital asset market.

At the very least, one of the annoying effects of that ruling is that it requires cryptocurrency market participants to go through the registration process again. Previously they had to go through the procedure to obtain a license under the FCA licensing framework, but now they will have to be evaluated “against a wider variety of indicators”.

The good news is that, unlike the conventional banking industry, organizations that operate in cryptocurrency will not be required to frequently publish their market data. On the other hand, exchanges would be required to store the data and ensure that it can be accessed at any time.

Unlike several of its overseas peers, the Treasury Department has chosen not to ban the use of algorithmic stablecoins. Instead, they will be classified as “unbacked crypto assets” and not “stablecoins”, as a result of this change. Despite this, the word “stable” cannot be used in any of the algorithmic coin marketing that is being done for cryptocurrencies.

According to the consultation paper, a separate regulatory framework for crypto-lending platforms would be considered, and should require lenders to take into account an acceptable collateral value and contingency preparations in case participants’ major market counterparties collapse. .

“Starting immediately, the government should promote deeper engagement with the business sector to design a comprehensive risk-based framework that is in line with global best practice.”

Nick Taylor, who is in charge of public policy for the EMEA region at the global cryptocurrency exchange Luno, believes that the sector is now at a defining moment. He remarked: “While there is still a way to go before new laws come into force, we are heartened by the size of the government’s ambition.”

The consultation will end on April 30, 2023. Until then, the UK government is interested in hearing feedback from any and all relevant parties, including cryptocurrency companies, financial institutions, trade associations, representative bodies, academic institutions, law firms and consumer advocacy organizations.