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The deadline for comments on the consultation paper and the request for evidence released by the UK Treasury regarding the proposed regulatory framework for crypto assets has now arrived. The long-awaited document, published in February, received detailed responses from various players in the cryptocurrency industry.
Blockchain provider Polygon Labs, venture capitalists Andreessen Horowitz (a16z), the Association for Financial Markets in Europe (AFME), and the Digital Pound Fund (DPF) released their responses to a call for comment on May 1. questions were raised.
The Treasury Department’s call for “same risk, same regulatory outcome” was well received, although there was no consensus on what this entailed, other than its foundation in the Financial Services and Markets Act 2000. A16z pointed out flaws in the security system of the United States. and the Exchange Commission’s reliance on the Howey test in evaluating the UK proposal. In his answer, a16z wrote:
“It is encouraging that the Treasury’s interpretation of this principle recognizes that this does not mean that it would be appropriate to apply the same form of regulation in all cases to achieve the same regulatory outcome.”
This is due to the emphasis of the proposal on the regulation of activities, rather than on the assets themselves. The main differences between centralized finance (CeFi) and decentralized finance (DeFi) have been central to this discussion. Polygon writes:
“The source of risk in DeFi systems is significantly different from the source of risk in centralized systems such as CeFi or a traditional financial system. To this end, it may be more accurate to replace: “same risk, same regulatory outcome” with “different source of risk, same regulatory outcome”.
The proposed framework treated fiat-backed stablecoins and algorithmic stablecoins differently, classifying algorithmic stablecoins as “unsecured cryptoassets.” In this case, Polygon has particularly favored an activity-based approach to regulation.
Related: UK Treasury seeks information on taxation of DeFi staking and lending
AFME, which worked with Clifford Chance consultants on its response, noted the importance of a global taxonomy of cryptocurrency assets for an effective international regulation and activity approach to rule out blockchain-based representations of value such as loyalty and reward programs.
1/ @a16zcrypto submitted our response to the UK @HMTreasury “Future Financial Services Regulatory Regime for Cryptoassets” consultation. We enthusiastically embrace the UK’s approach for a “proportionate and focused, agile and flexible,” regime. . . https://t.co/rT85Xfd8so
— Brian Quintenz (@BrianQuintenz) May 1, 2023
AFME has also defined the territorial scope of the proposed cryptocurrency regulations, which are written to apply to companies that provide services to UK citizens. He noted that this was a broader scope than the traditional asset rules.
DPF has noticed possible deviations from the principle of “same risk, same result of regulation” when dealing with several forms of cryptocurrency assets and commented on them in detail. The classification of stablecoins was one of the points that needed clarification in this regard.
The UK Government will act on the collected responses to this document and will consult further on the specific rules as their next step if they are “adopted”.
