UK regulation of the cryptocurrency market would take two years to introduce based on comparable extensions of the Financial Conduct Authority (FCA) remit, according to James Kaufmann, legal director at Reynolds Porter Chamberlain (RPC). Mr Kaufman says this is based on the best-case scenario where proposals in the recent House of Commons Treasury Committee report start to be progressed.
The process of introducing the necessary regulations, along with the required consultation period, is lengthy. Past precedents show it can take years to make relatively minor regulatory changes to the financial regulatory regime. For example, it took two and a half years from the Treasury's original announcement (10 May 2004) for the regulation of home reversion plans to come in force (6 November 2006). To regulate cryptocurrencies, Mr Kaufman explained the UK treasury need will to assess which specific activities related to cryptocurrencies need regulating perhaps with market study, and draft proposed regulations open to consultation. After the consultation period has closed, changes would need to be published and an implementation date set. Mr Kaufmann explained even the latest proposals were fast tracked, ‘it could still take years for regulations to cover the UK cryptocurrency market that treads the middle ground between protecting retail participants and allowing the UK’s cryptocurrency market to thrive.’ He added, ‘bringing a complex and fast evolving area like cryptocurrencies into a regulatory framework is going to be a difficult and lengthy process. Added to this, big issues like Brexit are already occupying a lot of regulator’s time.’
Race worth winning
RPC questions whether the FCA has the capacity and funding to handle the expansion of its role, as well as the requisite expertise. The European Parliament has also recently called for cryptocurrencies to be regulated across the EU, with many proposals similar to parts of HM Treasury’s report. Mr Kaufmann says ‘the race to establish a workable and regulated regime for cryptocurrencies is surely worth winning as their usage becomes more widespread across Europe and globally. The creation of a cryptocurrency trading hub may also have positive knock-on effects for businesses serving these markets, such as brokers, investment banks, and custodians as well as a potential increase in tax revenues for authorities.’