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Britain is making plans to regulate the crypto industry in the wake of the collapse of FTX

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British Prime Minister Rishi Sunak speaks during a question and answer session at Teesside University, on January 30, 2023.

Ole Scarf | wpa pool | Getty Images NewsS

The United Kingdom has officially laid out plans to regulate the cryptocurrency industry, as the government looks to rein in some of the reckless business practices that have emerged over the past year and contributed to The demise of FTX.

In a widely anticipated industry advisory launched on Tuesday, the government proposed a number of measures aimed at bringing regulation of crypto-asset businesses in line with those of traditional financial firms.

Among the proposals unveiled on Tuesday was a move that would strengthen rules targeting financial intermediaries and custodians who store crypto on behalf of customers.

The big theme that emerged in 2022 was the rise of risky loans made among many crypto companies and the lack of due diligence towards the counterparties involved in those transactions.

The UK’s proposals would crack down on such activities, seeking to create “strong rules to strengthen the first world order around crypto-asset lending, while strengthening consumer protection and operational flexibility for businesses,” according to a statement late Tuesday.

“We remain steadfast in our commitment to growing the economy and enabling technological change and innovation — and that includes crypto-asset technology,” Andrew Griffiths, Treasury’s Economic Secretary, said in a statement.

“But we must also protect the consumers who adopt this new technology – ensuring robust, transparent and fair standards.”

The collapse of FTX has added urgency to global regulators’ attempts to control the crypto space that avoids regulation. The European Union and the United States have already put forward their own proposals to improve consumer protection in cryptocurrencies.

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In a speech on December 2, Griffiths said that “recent events in the cryptocurrency market strengthen the case for fast, clear and effective regulation.”

the FTX breakdownwhich allegedly used customer funds to make loans and risky trades, has led to a chain reaction of bankruptcies for digital asset lending firms with exposure to the crypto giant, including BlockFi and digital currency group Genesis Trading.

The proposals unveiled Tuesday would also impose stricter transparency requirements on cryptocurrency exchanges to ensure they publish relevant disclosure documents and set clear acceptance requirements for trading digital tokens.

Read more about technology and cryptocurrency from CNBC Pro

Another measure would loosen strict rules on crypto advertising, allowing FCA-registered firms to release their own promotions while introducing the broader crypto ecosystem.

The regulatory move comes as crypto companies both in the UK and abroad are feeling the chill of a deep downturn known as the “crypto winter”.

Companies are seeing their valuations drop from investors after the FTX implosion and slump in cryptocurrency prices, while the industry has also been plagued by several rounds of layoffs. Last week, London-based cryptocurrency exchange Luno Cut 35% of its workforce in a move affecting more than 330 roles.

Organizing takes time. It will likely take years before parliament approves the measures. The Financial Services and Markets Act, which would recognize crypto assets as controlled products, is still making its way through Parliament. The law aims to make the country’s financial sector more competitive after Brexit.

However, even a minor show seen as taking action counts, according to some industry executives.

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“Having a regulatory roadmap or regulatory guidance for travel would be very beneficial for the UK in terms of being a crypto hub,” Julian Sawyer, CEO of Standard Chartered-backed crypto custody service Zodia Custody, told CNBC on Tuesday. .

Sawyer, who previously co-founded British fintech firm Starling and led the international expansion of cryptocurrency exchange Gemini, said it was also important to ensure “general consensus among global markets regarding approaches to digital assets.”

He noted that the European Union has advanced in the game with the Markets in Crypto Assets Act, which is expected to enter into force in 2024.

Bitcoin, which has surreptitiously gained about 40% since the start of 2023, was trading flat on Wednesday at $23,103.

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Rishi Sunak, who took the helm in the UK in October 2022, is seen by market players as a Prime crypto friendhaving previously said it was “determined” to make the UK “the jurisdiction of choice for crypto and blockchain technology.”

As London looks to compete with financial centers in the European Union post-Brexit, crypto could be a way for it to improve its chances, industry insiders said previously.

“There is an opportunity to provide clarity to the industry and allow it to play its part in delivering on its mandate to encourage businesses to invest, innovate and create jobs in the UK,” Jordan Wynne, UK head of public policy at Chainalysis, told CNBC in November.

Sunak’s management will consult on plans to introduce a new set of rules designed for crypto companies, aiming to close the consultation by April 30, after which it will draft more detailed rules.

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