UK Parliamentary Committee Calls For Urgent Regulation of Crypto-Assets

The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.

The Committee is also seeking the following actions:

1. The Committee asks the FCA to set out what its approach to market manipulation would be if crypto-exchanges did become regulated by the FCA.
2. The Committee implores the Government to prioritize implementing the recently finalized EU Fifth Anti-Money Laundering Directive into U.K. law. Among other things, 5MLD will extend the scope of "obliged entities" to include providers of exchange services between virtual and fiat currencies as well as custodian wallet providers. EU Member States must transpose 5MLD into their national laws by January 10, 2020. Existing U.K. transposition plans only envisage consultations being completed by the end of 2019. Taking into account Brexit, the Committee states that it expects the Government "to replicate the relevant provisions of [5MLD] in UK law as quickly as possible."
3. The Committee concurs with the Bank of England’s assessment that crypto-assets only present a low risk to financial stability because they are not widely used as a means of payment. Nevertheless, the Committee requires the BoE and the FCA to monitor developments in the crypto-assets markets, including financial institutions' exposure to them.