Crypto and Digital Assets Group formed: UK closes in on crypto regulation

2022. We’ve welcomed in the New Year, dusted off our desks and returned to work. For those in compliance, many will be taking stock of the year passed and gearing up to tackle regulations new in the year ahead.

No sooner had the dust of 2022 settled that members of the UK parliament and House of Lords announced the formation of the Crypto and Digital Assets Group (CDAG).

The group, which will be chaired by Lisa Cameron MP (SNP), will endeavour to create new rules and expectations for the cryptocurrency and digital asset industry. Speaking about the newly formed group to the Financial Times, Cameron commented:

“We are at a crucial time for the sector as global policymakers are also now reviewing their approach to crypto and how it should be regulated.”

At present, little formal information exists about the formation of the group, though members include former Digital Economy Minister Ed Vaizey and former JPMorgan Executive, Harriett Baldwin MP. The group is part of the Westminster All-Party Parliamentary Group (APPG), and is backed by CryptoUK, a digital asset trade association.

CryptoUK has said that the group will serve as a forum for policymakers, parliamentarians, and those in the crypto space to come together and discuss emerging policy and regulation of the industry. Moreover, it will focus on key challenges facing the industry, including the creation of a regulatory framework that addresses consumer protection and economic crime, while continuing to foster and support innovation. 

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The news comes as Compliance Week reports that an upcoming Chainalysis study has found that criminal transactions relating to crypto reached $14 billion in 2021. It is, no doubt, with this in mind that the CDAG has been formed.

As we recently noted, regulation for crypto is long overdue; desperately longed for by financial services and confusingly eluding global regulators. For many, the formation of the Crypto and Digital Assets Group will be welcome news as it appears to mark the first steps towards a regulatory framework. Of course, some (including crypto puritans) may be nervous about what regulation may bring – regulation, after all, can be stifling for innovation and creativity.

At present, cryptocurrency and digital assets sits on the outskirts of regulation. Regulators have tried, and in some cases succeeded, to regulate the space, but have been forced to do so within the confines of existing frameworks. In the US, for example, the Securities and Exchange Commission charged three associates of Bitcoiin2Gen with defrauding investors through its token offering. The issue at hand here though was fraud, and not the crypto space itself. Crypto regulation is long overdue, and it looks as though the UK is taking affirmative steps to tackling the issue head-on.

Lack of global standards could create complexity

It is worth noting, however, that while this is good news for consumers – the creation of a UK-based group is just one piece of a very large and complex puzzle. As we recently saw, Lawyer Dorothy Murray of Proskauer Rose LLP noted that there is a “notable divergence of approach at the national (and even sub-national) levels” when it comes to crypto.

The very nature of cryptocurrency and digital assets is that they transcend jurisdiction and traditional financial service frameworks. It is for this very reason that traditional regulatory parameters fail to manage it. I hope then that the newly formed CDAG understands the transience of crypto and does not look to create new regulations that fit an outdated mould. Instead, they should look to work cross-border with their global counterparts to create a standardised set of regulations that empower regulators and financial institutions to manage crypto in one standardised form, rather than grabbling with siloed regulations.

Compliance teams (those that fail to use RegTech) currently spend hundreds of hours decoding regulations and understanding overlaps. One simply has to recall the turbulence caused by the cross-jurisdictional interpretation of GDPR to understand how challenging compliance can be. Crypto regulation should look to make the space easier to manage, not be yet another thorn in the side for compliance. 

CUBE solves complex compliance for financial services.