Digital assets, which include cryptocurrencies, stablecoins, and non-fungible tokens (NFTs), have sparked growing interest in regulatory circles worldwide. In the UK, the regulation of digital assets has been a dynamic and rapidly evolving area of law. Over the past year, significant strides have been made to provide clarity and structure to this burgeoning sector. This article provides an overview of the latest regulatory developments in the UK as of September 2024, anticipates possible next steps, and highlights noteworthy issues in other major jurisdictions.
Recent developments in the UK
In 2023, the UK government took several key steps to regulate digital assets more comprehensively. The Financial Conduct Authority (FCA) has been at the forefront of these efforts, focusing on ensuring that digital asset businesses adhere to stringent anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. One of the most notable developments was the extension of the FCA's Temporary Registration Regime (TRR) for crypto-asset businesses, allowing firms more time to meet the necessary regulatory requirements while continuing their operations.
Additionally, the UK Treasury has been actively working on a consultation paper aimed at establishing a more robust regulatory framework for stablecoins, recognising their potential to transform the payments landscape. The proposed regulations seek to ensure that stablecoins are safe, reliable, and can be integrated into the broader financial system without posing significant risks.
Importantly, we expected the UK to continue refining its regulatory approach to digital assets through legislation and, on 11 September 2024, the Property (Digital Assets etc) Bill was introduced in Parliament. It provides for a 'thing' that is digital or electronic in nature being the object of personal property rights, despite it not being a 'thing in possession' nor a 'thing in action'. In other words, this is the first time in the UK that cryptocurrency, NFTs and other similar digital assets will be seen as personal property under the law. Additionally, the new law focuses on enhancing consumer protection measures and will give legal protection against fraud and scams.
Anticipated next steps
The Bill has recently started its journey through the House of Lords and will go through three readings before reaching the House of Commons.
Strengthening international cooperation will be essential to address the global nature of digital assets and ensure regulatory consistency across borders, as digital assets can move seamlessly between jurisdictions. As such, we expect to see the UK continuing to collaborate with other jurisdictions.
Noteworthy issues in other major jurisdictions
The regulation of digital assets is not confined to the UK; other major jurisdictions have also been active in this space:
- United States: The U.S. Securities and Exchange Commission (SEC) has been particularly vigilant in its enforcement actions against unregistered digital asset offerings. Additionally, the Commodity Futures Trading Commission (CFTC) plays a key role in overseeing digital asset derivatives. On 22 May 2024, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act which is designed to clarify the role of different regulators in the oversight of crypto in the US. If enacted, it would provide a clear set of tests to determine whether cryptocurrency is a security or commodity and bring the US one step closer towards effective regulation. However, we are yet to see the outcome of this legislative plan.
- European Union: The EU has made significant progress with its Markets in Crypto-Assets (MiCA) regulation, which aims to create a harmonised regulatory framework across member states. MiCA is expected to provide legal certainty and foster innovation within the digital asset space. On 30 June 2024, the first set of measures came into force with the remainder of the regulation applying from December 2024.
- China: In contrast, China has taken a more restrictive approach by implementing a blanket ban on cryptocurrency transactions and mining activities. This has contributed to a global shift as many crypto businesses have moved to more crypto-friendly jurisdictions, such as the United States or Europe.
Conclusion
The regulation of digital assets in the UK and other major jurisdictions is a complex and evolving area. While significant progress has been made over recent years, much work remains to ensure that regulatory frameworks are robust, comprehensive, and capable of fostering innovation while protecting consumers. As regulators face ongoing challenges—such as technological advancements that may outpace legislative responses or the need to balance innovation with security—it will be crucial for businesses and investors alike to stay informed about these developments.
