UK Crypto Race to Regulate Ahead of General Election: Genuine Intent or Parting Gift?

Key Takeaways

• Ambitions of implementing robust crypto and stablecoin regulations seem to hinge on the general election deadline.
• Prime Minister Rishi Sunak is one of the most unpopular PMs of all time.
• Crypto may not be a priority for a government that could be leaving office this year.

With a general election looming ahead at some point this year, the UK government appears to be hurriedly pushing sweeping crypto regulation and legislature into force with the aims of protecting consumers, and achieving the ambiguous aims of becoming a “crypto hub.”

However, poor sentiment toward Prime Minister Rishi Sunak, a torn cabinet, and early polling suggest a severe defeat in the coming election. This leaves many to wonder whether this really is a legitimate attempt to foster Web3 in the UK.

The Regulation Race

Over the past few years, governments around the world have been slowly putting in – and changing – the many rules and regulations around cryptocurrencies in a bid to lessen the ever-widening gap between the rapidly evolving pace of the technology, and the slow bureaucratic process of creating new laws.

The UK is no exception to this, but it looks like it’s simply trying to play catch up with the rest of the world. Nevertheless, the past year has seen the British government rapidly introduce numerous crypto-related laws, rules, and regulations.

The problem is, however, that the ruling Conservative party and Prime Minister appear wildly unpopular. Polling suggests that they’ll likely be ousted from government at the next general election , which will take place this year.

As a result, there are some doubts as to how robust or effective new measures, largely focused on consumer protections, will be. Although the authorities are right to prioritize its citizen’s safety above all else, there is little word of the positive effects that such regulations will provide to the UK’s crypto industry.

Furthermore, the PM’s hopes of turning the UK into a crypto hub could be cut short at a moment’s notice should the general election happen before any key legislature can get off the ground.

The UK as a Crypto Hub

As part of the “Crypto Hub ” narrative announced in 2022, the UK government declared that it would introduce stablecoin regulations and legitimize them as a form of payment. It said it would also announce “a series of measures to make the UK a global hub for cryptoasset technology and investment”.

This also included creating a “financial market infrastructure sandbox” for innovation that came into force  on January 8, 2024. There was also an odd project where the Royal Mint would have produced a non-fungible token (NFT) of sorts. However, the project was dropped  in early 2023.

Later that year, the UK enacted legislation that would bring cryptoassets under the scope of existing financial regulations, though with new provisions for crypto. This also brings cryptoassets and crypto firms under the regulatory provision of the Financial Conduct Authority (FCA).

Notably, the Financial Services and Markets Act 2023  (FSMA 2023) follows the introduction of the European Union’s sweeping Markets in Crypto Assets (MiCA) regulations, bearing numerous similarities.

However, due to a recession, UK banks’ reluctance to engage with crypto services and therefore deny services to customers, disarray in the UK government itself, and numerous other factors, questions remain as to whether or not there will be such as thing as a “Crypto Hub” under the current government.

UK Crypto 2024

With the pressure on to deliver, though UK regulators and lawmakers have only came up with two things. Firstly, they have proposed a way of the curbing illicit and illegal use of crypto. Secondly, they have made vague promises about the arrival of stablecoin regulations  in the summer of 2024.

This also saw new powers introduced that, from April 26, will allow UK authorities seize and potentially destroy crypto assets without a criminal conviction. On one hand, the desire to tackle the rising cost of crypto crime is a noble one. On the other hand, it arguably fails to instill any confidence in would-be crypto entrepreneurs in the UK.

Promises to bring fiat-backed stablecoins under the oversight of the FCA remain up in the air. However, there is an expectation that stablecoins will fall under the umbrella of current payment regulations. Despite a 2023 announcement  from the Bank of England (BoE) and the FCA to oversee the implementation of a stablecoin regime, nothing has happened yet.

Perhaps most telling of all was a series of conflicting statements from Economic Secretary to the Treasury, Bim Afolami. When speaking at a Coinbase event in February, he said he though it could he be done within six months. When pressed on a timeline, however, he said:

“There’s just a huge amount going on, so I don’t want to commit to that now.”

Institutional Crypto Products

Oddly, and perhaps most significantly, is that the UK FCA announced  that it would not object to applications from professional and institutional investors seeking to issue crypto exchange-traded notes (cETNs) despite restrictions.

They’re similar to exchange-traded funds (ETFs) but are the favored exchange-trade product within the EU and the UK which share broadly harmonized financial rules and regulations.

Indeed, the London Stock Exchange (LSE) received applications to issue such products. Whether or not this will be a boon for the UK crypto industry is yet to be seen.

Empty Handed?

The likes of PayPal have had to strip back newly-released crypto and stablecoin features because of strict UK regulations.

Meanwhile, the unexpected arrival of institutional-grade crypto products has left many wondering about what the government is actually up to. The ruling Conservative party is divided. More importantly, it has lost numerous key by-elections in the run-up to this year’s poll.

This means they have a deadline to deliver. Therefore, it is rather unlikely the vision of the “Crypto Hub” will be realized before the next general election. Indeed, Sunak may not even  make it that far.

Crypto won’t win over voters, and it won’t stabilize a government. In terms of priority, it ranks lower and lower on the list the closer the general election gets. If the intention is to speed adequate and robust crypto regulation through before leaving office, Rishi’s government has barely achieved that either.