The adoption of cryptocurrencies could see improvements in market resilience, transparency, and efficiency; this is something the UK government agrees with.
However, it does not believe that there will be any change in the existing legislative framework that exists for unbacked cryptocurrencies and derivatives at any time in the near future.
Consultation paper
The Treasury released a consultation paper in which its plans for the Digital Securities Sandbox (DSS) were outlined.
This is being introduced in accordance with the Financial Services and Markets Act 2023 which was passed into law in the United Kingdom in the previous month.
The main purpose of introducing the DDS initiative is for the development of a regulatory environment for digital securities that offers flexibility.
These would include both tokenized versions of existing securities, along with native digital securities. But, unbacked crypto assets, such as the likes of Bitcoin and Ethereum, would be excluded.
The Treasury collectively refers to this asset type as one closely linked with new technologies, such as DLT i.e. Distributed Ledger Technology.
The paper stated that exchange tokens are also included in this particular asset category, which means they will not be included either.
The Treasury
According to the Treasury, the regulatory landscape is still evolving, not just in the United Kingdom, but also globally.
It said that until these frameworks are able to see some more certainty, they would have to use the regulatory initiatives that already exist for developing the regulations and policy applicable to this class of asset.
In addition, the derivatives transactions associated with the underlying assets would also be subject to the same approach.
This is due to the fact that the DSS aims at regulating activities related directly to securities.
Even though the DSS will not include unbacked cryptocurrencies, the Treasury did add that market operations could shift radically if digital assets are globally adopted.
The paper said that digital asset use had the potential of turning out to be transformative for global markets.
The details
The relaxation of legislation that has been proposed within the DSS will initially be applicable for five years and digital equities and bonds would be the target.
In addition, the digital versions of various assets, such as money market instruments, will also be included. The Treasury does have the authority to extend this duration if it wishes.
The blockchain sector’s advancement would be given a foundation by the Financial Services and Markets Act 2023 and this would allow more ‘sandboxes’ to be established.
These refer to controlled environments, which are aimed at assisting in the testing and adoption of novel technologies in the financial markets, such as blockchain technology.
Crypto assets were also defined as regulated financial instruments, investments, and products, and crypto trading was also termed as a regulated activity.
Other than this news, the regulatory body in the UK, the Financial Conduct Authority (FCA) also made an announcement for companies that promote cryptocurrencies.
According to the regulator, the companies that target their promotions toward British customers would have to be in compliance with the financial promotion regime that exists by October 8th this year.