Cryptocurrency Plunge Takes Heat Off UK Regulators

The recent plunge in the value of Bitcoin and other cryptocurrencies may be bad news for investors, but it has taken pressure off of regulators and officials in the UK to take action on cryptoassets.

A slate of initial coin offerings last year, capped by Bitcoin’s surge to nearly $20,000 (£15,592) at the end of 2017, had seen regulators and central bankers around the world considering action to bring digital assets into line with the broader regulatory landscape.

But any radical reform could have discouraged financial innovation and investment in the sector, UK officials and regulators told a financial conference in London, according to a report by Reuters.

They said that with the drop in value of cryptoassets over the course of 2018, there is now less need to take immediate reform action.

Proportionate approach

Instead, regulators and the government are focusing on clarifying how more than 2,000 cryptoassets fit into existing rules, before considering reforms.

“We want to take the time to look at that in a bit more depth and make sure we take a proportionate approach,” Gillian Dorner, deputy director for financial services at the UK finance ministry, told a City & Financial conference.

Bitcoin and other cryptocurrencies slid sharply last week following a fork in Bitcoin Cash, which itself forked from Bitcoin last year.

They then slid again at the beginning of this week, with Bitcoin sliding as much as 10 percent to below $4,500 on Tuesday. The drop puts Bitcoin roughly 75 percent down from its heights of late 2017.

Dorner said the UK is looking to balance economic innovation with consumer protection, market stability and clamping down on financial crime.

Christopher Woolard, executive director for strategy and competition at the Financial Conduct Authority, said the regulator wants to clarify the “grey edges” that surround the perimeter of existing regulations.

Shifting the regulatory perimeter

The FCA is planning to consult by the end of this year on which cryptoassets fall within the regulator’s existing remit, and which do not, he said.

“This will help clarify which cryptoassets fall within the FCA’s existing regulatory perimeter, and those cryptoassets that fall outside,” Woolard said.

That consultation is to be followed by another by the finance ministry on whether to shift existing regulatory borders, according to Woolard.

A financial task force formed by the government, the FCA and the Bank of England last month said retail sales of cryptoasset-linked derivatives should be banned.

But Woolard said the FCA was looking to work with regulators elsewhere in order to give more weight to such recommendations.

In September, a parliamentary committee said cryptocurrencies such as Bitcoin should be regulated to protect consumers against a “Wild West” industry in which they could lose everything they invest.

But earlier this year, the Basel, Switzerland-based Financial Stability Board (FSB), which coordinates financial regulation for the Group of 20 Economies (G20), said that the extreme volatility of virtual currencies doesn’t pose an immediate threat to stability.

Rather than immediate regulation, the FSB said that for the time being cryptoassets require “vigilant monitoring”.