GOVERNMENT RELEASES FIRST PAPER ON CRYPTO REGULATION
The government’s opening salvo in the crypto realm has been fired, and it comes with some interesting insights into how the government plans on regulating the tech.
The main insight is into a proposed licensing scheme for cryptocurrency exchanges. It would appear that Crypto Asset Secondary Service Providers (referred to in the doc as CASSPrs) will be subject to their own licensing scheme, operating in parallel with the current AFSL scheme that financial service providers are subject to.
So what’s a CASSPr defined as? A CASSPr is ‘a person who conducts as business any of the following activities on behalf of another person or entity:
- Exchange between crypto assets and fiat currencies
- Exchange between one or more forms of crypto assets
- Transfer of crypto assets
- Safekeeping and/or administration of virtual assets or instruments enabling control over crypto assets
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a crypto asset’
Essentially this boils down to cryptocurrency exchanges and related entities. It’s obvious that the plan here is to make sure that those who invest using such tools won’t find themselves out in the cold if the exchange of their choice goes broke.
Now back to licensing. Some in the finance world have found the separate licensing scheme proposal to be unwieldy, as the UK’s in-the-works plan proposes extending current licensing requirements to crypto assets. The government’s stated reasons for not following suit is that the purpose and function of financial products really isn’t applicable to everything crypto – which means that they would be ‘fish out of water’ in the AFSL system.
Does this hold water? Well, yes and no. The government is correct when they say that not everything crypto falls under financial services – for example, digital identification through blockchain isn’t a financial product. That being said, the majority of current crypto applications do involve finance, and an alternative system where these are covered by the AFSL system, and sectors which don’t involve finance simply aren’t – may be preferable.
This is the highwire balancing act the government must undertake by creating a regulatory framework around the new tech – the question now is whether they will do it right. Those involved in the crypto sphere must make submissions to the government by May 27, and will likely shape the way crypto is regulated in the future.
With so much still uncertain, it remains to be seen whether the proposed framework is the one adopted, or whether things will shake out much differently. One thing’s for sure though: It’s likely to be a make or break moment for crypto tech.