Trump’s presidency and the EU’s MiCA coming fully into effect are a call to action for the UK
by Brett Hillis, Partner at Reed Smith
SETTING regulatory policy for digital assets is difficult.
On the one hand jurisdictions need to develop regulations that provide the right level of protection to those using digital assets or investing in them, especially retail consumers and investors.
At the same time, countries want to attract the high-paying jobs, tax revenues, and improvements to financial and commercial infrastructure that tokenisation, stablecoins, smart contracts and the Web3 infrastructure may bring. Balancing these considerations takes time and careful policy development.
Rather than pushing a regulatory “Big Bang”, the UK has amended regulations to cater for digital assets incrementally. This step-by-step approach has allowed it to adjust its approach as it goes, learning from events and experiences as they occur.
With the regulatory regime for fiat-backed stablecoins pushed back until 2025 and rolled into the broader phase 2 regime, which will bring digital assets more broadly within the Financial Services and Markets Act regulatory perimeter, there is hope on the horizon, but no doubt that much remains to be done.
By contrast the EU quickly developed its MiCA regulation, which comes fully into effect in December. However, the level 1 text was finalised even before the FTX collapse, suggesting a more limited opportunity to learn from experience, which may hurt EU consumers and businesses.
But while there are concerns about the inflexibility of MiCA and whether it is fit for purpose in every respect, its introduction will provide the EU with a level of policy predictability that will be attractive to many digital assets companies. You may not like everything about MiCA but at least you know where you stand.
At the same time, the “hostile environment” towards crypto exhibited by many US regulators will undoubtedly end. Trump’s election win has sent Bitcoin soaring to new heights suggesting some confidence that his administration’s regulatory policy will make the US safe for digital assets.
While it is too early to say if the new US Congress will be able to pass legislation that reduces some of the regulatory complexity around digital assets, the new Presidency is likely to herald a more crypto-friendly enforcement stance, thereby increasing the US’s already great advantages as a crypto hub.
With MiCA coming fully into force in the EU, the UK sits between the exuberant expectations regarding the US and the solid (or stolid) predictability of the MiCA regime. In such an environment, the UK needs to deliver quickly on the expectation that it will introduce the new fiat backed stablecoins regime early next year.
It also needs to ensure that the relevant regulators are properly resourced. The times taken to process crypto asset firm AML registrations have been unacceptable and a drag of the industry.
Trump’s presidency and MiCA bring the UK’s policy and implementation into sharper focus. There is a great opportunity for the UK to regulate more sharply than its peers, but it also needs to work quickly, and ensure its regulators are properly resourced as well.
Blockchain and digital assets have the potential to drive efficiencies and better outcomes across swathes of financial activity.
The prizes are great but there is much to do.
Brett Hillis is a member of On Chain - Reed Smith’s dedicated cryptocurrency and digital assets group
