The UK’s HM Treasury recently closed its consultation period on the proposed crypto asset regulatory framework, generating detailed responses from key industry players such as Polygon Labs, Andreessen Horowitz (a16z), the Association for Financial Markets in Europe (AFME), and the Digital Pound Foundation (DPF). The common goal of achieving “same risk, same regulatory outcome” resonated well though, the understanding varied among respondents.
A16z, while evaluating the UK proposal, commented on the inadequacy of the United States Security and Exchange Commission’s Howey test. The treasury was lauded for its interpretation of the principle, which does not necessarily imply applying the same regulation in all cases.
The proposal’s emphasis on regulating activities instead of the assets themselves led to the discussion of CeFi (centralized finance) and DeFi (decentralized finance) distinctions. Polygon suggested updating the principle to “different source of risk, same regulatory outcome” since DeFi’s risks differed from those in CeFi and traditional financial systems.
One key issue was the classification of stablecoins. The proposed framework distinguished between fiat-backed and algorithmic stablecoins, the latter being classified as an “unbacked cryptoasset.” Polygon expressed approval of the activity-based regulatory approach regarding stablecoin classification.
The necessity of a globally defined crypto asset taxonomy for efficient international regulation was stressed by the AFME in collaboration with consultants Clifford Chance. They also highlighted the importance of excluding blockchain-based representations of loyalty and rewards programs from an activities-based approach.
One notable concern raised by the AFME was the territorial scope of the proposed regulations, which currently apply to companies offering services to UK nationals. This broader scope contrasts with traditional asset regulations, which might pose challenges.
The Digital Pound Foundation (DPF) spotted potential inconsistencies in the framework, particularly in handling various crypto asset forms with regards to the “same risk, same regulatory outcome” principle. The classification of stablecoins was cited as an area requiring clarification in this context.
As the next course of action, the UK government plans to review the responses received and engage in further consultations on specific regulations, should they advance. This careful approach showcases the UK’s attempts to navigate the delicate balance between fostering innovation and ensuring security in the ever-evolving crypto universe.