Finance Lobbyists Raise Red Flags on UK Crypto Policy

Prominent lobby groups in conventional finance have raised concerns with the UK government regarding its intentions to regulate the crypto sector, warning against granting legitimacy to a market the groups say pose risks to consumers.

In February, the UK government initiated a consultation process regarding its comprehensive 82-page policy proposal for the crypto industry. 

The proposal emphasized the importance of enhanced dialogue between regulators and crypto companies, aiming to position the country as a competitive hub for sustainable finance.

Andrew Griffith, financial secretary to the UK Treasury, provided assurance in April that the consolidation of crypto regulations would be accomplished over the course of the next year or so.

Meanwhile, some powerful lobby firms have warned about regulations normalizing crypto, per the Financial Times. 

In one of several responses to the consultation, which concluded in April, the Institute of Chartered Accounts in England and Wales (ICAEW), which represents the UK’s Chartered Accounts, expressed its support for the government’s aspiration to establish the most transparent, well-regulated and technologically advanced capital market globally.

But it warned that cryptoassets carry different risks than traditional assets for regulated activities.

“By expanding the perimeter and authorising firms for crypto related activities, consumers might be justified in concluding that the perceived risks that are known about cryptoassets have been to some extent addressed or managed,” it added. “We know that this is not the case. Many of the propositions are yet to demonstrate a clear business case or economics that justify current asset valuations.”

The government proposes to define cryptoassets as not just cryptocurrencies, but tokenized versions of traditional financial assets. It also potentially includes any encrypted information that holds “value.”

The International Regulatory Strategy Group (IRSG), representing finance lobby group TheCityUK and The City of London Corporation, emphasized the necessity for significantly improved precision in the definitions outlined within the proposals, as highlighted by The FT.

The group suggested that the government should reconsider the broad definition, since almost all electronic systems rely on encryption to transmit data packets that could be seen as having value.

Meanwhile, the FT also noted that the Chartered Institute of Taxation and Association of Taxation Technicians, expressed concerns about the practical challenges faces by its members in handling crypto transactions. They urged the Treasury to specifically address the tax treatment of cryptoasset transactions.

Separately, the UK’s Tax Authority is considering the implementations of regulations that would grant the agency the authority to seize cryptoassets from businesses that have failed to meet their tax responsibilities.

James Carn, associate director in private client tax at wealth manager Evelyn Partners, told Blockworks that to ensure fairness, digital wallet funds should be accessible to HM Revenue & Customs if the holders owes tax and refuses to pay.

“It is noted that some practical issues will need to be addressed, in particular how HMRC will access certain wallets,” he added. “HMRC noted that there could be technical challenges in directly accessing crypto wallets, but the conclusion of the consultation is that evidence and legal questions will be examined over the next year with a view to pressing ahead with the proposals.”

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