UK in good stead to regulate crypto as specific laws needed, S&P Global says

The UK is in strong position to regulate crypto and remain a financial hub as tailored laws are needed to prevent investors from facing “substantial risk”, S&P Global said. 

“Crypto asset investors face substantial risk without built-for- purpose laws and regulation,” the financial information giant said in a report yesterday. “Policymakers will have to move fast if they want to meet government’s digital ambitions for the U.K.”

The report said that the UK has the advantage of a simpler policymaking structure, with fewer bodies involved in setting a regulatory framework for crypto compared to the US and EU. UK regulatory bodies also have a good reputation of dealing with tech innovation.  

“In the global competition to remain a growing and innovative financial hub, the U.K. has strong cards to play,” S&P Global said.

The UK’s approach focuses on anti-money laundering and terrorist financing, with consumer protection of increasing focus. 

The report emphasised the need for a proper regulatory framework for crypto, with the current crypto environment providing little investor protection.

“Lack of legal and regulatory clarity is constraining growth and innovation and increases risk for investors,” it said. “The current environment produces an adverse selection problem where limited transparency can lead to fraud and ill-conceived projects that can cloud the market.”

The report said that “built-for- purpose laws and regulations” would attract established firms that are waiting for guidance and give clarity to new players. 

“We believe regulatory clarity and better investor protection will increase investment and support innovation.”

The main priorities for policymakers, will be consumer protection, financial stability, market conduct, and anti-money-laundering rules, among others, while striking a balance that would encourage and enable innovation, S&P Global said.

For stablecoins, how they coexist with the traditional financial system and not significantly advance systemic risks is among regulators’ chief concerns. A one size fits all approach for crypto exchanges would also not be appropriate.

We expect regulations to adapt and tighten to have a broader coverage of crypto asset exchanges, with consumer protection a key goal.