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Government plans to regulate crypto for greater consumer protection

by Madaline Dunn

Crypto can feel like a bit of a minefield at the best of times, it is undoubtedly volatile, and currently, comes with fewer legal protections. However, as governments increasingly look to capitalise on the cryptomarket, and a number of high-profile hacks, regulation is on the way. This was first seen in the Financial Services and Markets Bill (FS&M Bill), and its latest proposals concerning the regulation of cryptoassets.

At The Salary Calculator, we know how challenging it can be to navigate the ins and outs of crypto and if you’re thinking of dipping your toe in as a potential investment opportunity, you’ll likely want to know where you stand from a regulatory point of view. Below, we’ll walk you through:

• The current risks associated with crypto
• The government’s regulatory plans and what they’ll involve
• How you’ll be affected as a consumer and how to keep safe when trading

Current risks associated with crypto

Crypto is known for being elusive, and volatile. According to research by the All-America Economic survey, only 8% of Americans have a positive perception of cryptocurrency. It’s only slightly better in the UK, too, with 15% thinking positively about crypto.

It’s no wonder there’s such a bad perception of the currency, either: it’s a big energy sucker, not VERY environmentally friendly, people often make losses trading (three-quarters have likely lost money on their investments in cryptocurrencies) and billions have been stolen in recent years.

Recent research by Chainalysis found that 2022 was the biggest ever year for crypto hacking, with around $3.8 billion stolen. Speaking about this, Kimberly Grauer, director of research at Chainalysis, said: “This year we saw some really big attacks that accounted for a lot of the value hacked. We saw a lot of advancements in the Web3 space – that introduced large new vulnerabilities that expert hacking organisations exploited.”

The EU has already outlined the world’s first comprehensive set of rules, due for final approval shortly, and to be introduced by next year. The UK is now following the EU’s example.

Plans for increased safety

To battle against the fraud and theft that is rife in the cryptomarket, the UK government has set out plans to bring in tighter regulation. According to the Treasury, this regulation is pegged to “protect consumers” without “stifling the potential economic benefits” of the crypto industry. This comes after criticisms that crypto is, at present, a “wild-west.”

So, what will the regulation actually do? Well, according to the government it is going to bring regulation of a broad suite of cryptoasset activities in line with its approach to traditional finance.

The government has outlined in its consultation for the proposals:

• It will create rules on crypto-asset promotions which are “fair, clear and not misleading,”
• Boost data-reporting requirements, including with regulators,
• Introduce new regulations to prevent “pump and dump,” which involves people artificially inflating the value of a crypto asset before selling it.

In a statement, Andrew Griffith, economic secretary to the Treasury, said: “We remain steadfast in our commitment to grow the economy and enable technological change and innovation – and this includes cryptoasset technology. But we must also protect consumers who are embracing this new technology, ensuring robust, transparent and fair standards.”

How the changes could affect you and how to keep safe when trading

According to research, 2.3 million people in the UK own some form of crypto asset, which means that there’s a whole host of people that could be affected by the regulation proposals currently open to consultation.

There are a few key things to note and below we’ll go into a little more detail:

• The government is discussing an issuance and disclosure regime, which will seek to provide appropriate liability and compensation for untrue or misleading statements, as well as minimum standards of information around issuance and investor protections regarding marketing materials,
• Regarding exchanges, the government is exploring “transparent and fair access and operating rules,” with systems and processes for ensuring accurate market data in real-time,
• It is proposing a dedicated regime to detect and tackle market abuse in digital asset markets (spoofing and layering, pump and dumps, wash trading, etc.),
• With regard to lending programs, the government outlined there should be: adequate risk warnings for consumers; adequate liquidity and wind-down arrangements; clear contractual terms for ownership and, ringfence retail funds in the event of insolvency.

Further to this, on Monday 6th February, the Government published a policy statement on its approach to cryptoasset financial promotions regulation. This outlined that cryptoasset promotions to UK consumers, will have to be clear and fair, and offer customers a 24-hour cooling-off period.

Speaking about the proposals, Jason Guthrie, European head of digital assets at the financial firm, Wisdom Tree, said looking forward, the “devil would be in the detail” with the right regulation in the interests of the industry and customers. “Having a solid a regulatory framework, having enforcement capabilities, is really important for consumer confidence. The sooner we have details around concrete proposals, the easier it is to plan for and build towards,” he said.

The proposals would largely see more security around investment, however the consultation on the proposals will run until April 2023, and safeguards will not be introduced for quite some time. Even when they are introduced, they still won’t eradicate all the risks associated with trading. Until then, to ensure you safeguard yourself, take the following steps to make investing safer:

• Be sure to use a trusted crypto platform and make sure to carefully read your exchange’s user terms and agreements. This will assist you with finding out where your funds are stored and what will happen if an exchange goes bankrupt.
• Enable two-factor authentication so that you’re provided with an additional layer of security.
• Avoid Public Wi-Fi Networks, unless you have a VPN. This is because public Wi-Fi networks are vulnerable to hackers and allow them to spread malware.

Tags: cryptoassets, cryptocurrency, Economy, UK