UK’s future crypto custody regulations could disrupt the existing situation with custody services
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The UK has been making efforts to introduce new regulations into the local crypto industry, with one of the steps being stablecoin regulations. However, while this move found strong approval, the country’s move to also enhance rules in the custody of other types of cryptoassets might be more disruptive to the current status quo of custody services.
As the UK FCA and Bank of England are considering a new approach on regulating stablecoins, the Association for Financial Markets in Europe (AFME) shared some concerns regarding the regulators’ future moves.
Stablecoin regulations are welcomed, but other rules have caused concern
AFME is an industry advocacy organization that represents Europe’s wholesale market participants. That includes the UK, as well as the EU. The organization’s Managing Director of Technology and Operations, James Kemp, shared concerns regarding the country’s plans for regulating fiat-backed stablecoins.
As mentioned, stablecoin regulations themselves are considered to be a positive step. However, enhancing the rules regarding the custody of other types of assets — especially security tokens — turned out to be a cause of concern.
According to an HM Treasury document, “As addressed in the response to the Future Financial Services Regulatory Regime for Cryptoassets consultation, custody of security tokens will no longer be regulated in the same way as other specified investments and will instead be included in the new regulated activity for custody, alongside fiat-backed stablecoins issued in or from the UK.”
AFME believes that security tokens should be treated as securities throughout their lifecycle since their status does not change at any point.
AFME explains its concerns
Commenting on the matter, Kemp said that the UK’s plan to bring stablecoins into the regulatory perimeter is a positive step toward creating a safe and sound system for crypto assets. In addition to that, it will help promote confidence in DLT-based capital markets. But, AFME’s concerns lie with the proposed design of a number of the rules. These rules, in their current form, are expected to have negative consequences for wholesale markets and participants.
Kemp further said: “The FCA discussion paper goes beyond just regulating stablecoins, as it proposes enhanced rules in the custody of other types of cryptoassets, including those that currently meet the definition of specified investments. These instruments, which include security tokens, are inherently securities and should be treated as such throughout their lifecycle. To preserve market functioning, it is important that they are not subject to the separate regulatory treatment and territorial scope for custody proposed by the FCA.”
He concluded by saying that AFME is concerned with the rules, as it believes that they would undermine the status quo in the provision of custody services, which is why it urged the UK Treasury and FCA to reconsider the proposal.
The organization is aware that the changes are needed in order to enable UK wholesale institutions to optimally access and provide custody services in the growing markets of security tokens. Kemp also noted that without such changes, the proposals would have a strongly negative impact on the UK investors’ access to the market.
