Developing our approach to crypto regulation

We brought together over 100 organisations involved in the industry, like crypto exchanges, banks, trading firms, blockchain analytics companies, law firms, industry associations and universities. Government officials, academics and other regulatory authorities including the Treasury and Bank of England. The US Securities and Exchange Commission also joined us to share their views.

Together, we discussed the challenges and opportunities certain aspects of the future crypto regime posed. Policy colleagues sat alongside participants to hear different perspectives first-hand and capture valuable insights that we can use to help get our rules right.

So, what did we discuss in these sessions?

Admissions and disclosures

Admissions and disclosures are a crucial aspect of the new crypto regime we’re proposing. Proper disclosure to investors lies at the centre of global regulatory efforts to improve the integrity of constantly evolving crypto markets. It’s an area that’s fundamental to investor protection as it allows people to make informed financial decisions.

In our discussions we heard:

• Participants were keen on the idea of an industry-led admissions and disclosures regime that was proportionate and tailored to different business models, like institutional and retail.
• Decentralised cryptoassets - those that have no central issuer - can be challenging. This is because compliance with some disclosure and due diligence requirements could be more difficult when crypto trading platforms can't communicate with an issuer. Instead, they’ll need to rely on publicly available information.

Market abuse regime

Traditional UK market abuse regulation really is at the heart of ensuring financial markets run efficiently and investors can make informed decisions. Market abuse can manifest in crypto markets in novel and distinct ways, giving rise to new challenges for firms, governments and regulators. Despite this, we want to achieve the same outcomes wherever possible when it comes to a crypto version of market abuse regulation.

In our discussions we heard:

• The importance of considering the international context of crypto market abuse. Participants highlighted the challenges posed by data privacy laws across jurisdictions for sharing market abuse information.
• Varying views on how to appropriately account for decentralised cryptoassets, particularly around disclosures of important information. Some participants suggested adopting disclosure rules like those in traditional finance, while others raised concerns about the difficulties and potential issues of applying this approach to crypto.

Trading platforms and intermediaries

We’re aiming to create a regime that puts in place strong systems and controls that enables fair, orderly, transparent and efficient trading. Ultimately, we want our regime to consider the unique characteristics of crypto and deliver in the best interests of the client. That’s why we got together to discuss what a future regime should look like for trading platforms and intermediaries – exploring topics like location policy, operational resilience requirements, conflicts of interest and matching and order execution.

In our discussions we heard:

• Participants welcomed the distinction between retail and wholesale for areas such as: incorporation, disclosures and customer protections, product choice and options, risk management and alignment with existing traditional finance rules.
• International standards came up again, but this time in the context of their important role in supporting growth and reducing regulatory burdens.
• We had an in-depth discussion around the meaning and criteria of ‘best execution’ for clients’ orders, as well as the relevant and helpful measurement metrics. Most participants agreed that price is not the only factor in best execution; other factors, like custody arrangements and asset safety, are also important.
• Participants thought exchanges that issue their own tokens or run other activities such as brokerage and market making, pose the most significant conflicts of interest.

While there is still work to be done, I’m pleased to be able to say that we’re already making progress in some of the areas we discussed during these roundtables. For example, we’re leading the implementation of international crypto regulatory standards via our leading role in the International Organization of Securities Commissions (IOSCO). We’re also already working with industry and the Treasury to help shape an industry-led market-abuse information sharing platform.

We’d like to thank everyone who took the time to join us and share their thoughts and experiences. These discussions are just the beginning of the extensive engagement we’ll need with stakeholders across the board to get the rules right.