What are Cryptos?

Cryptocurrencies are digital assets. They are created (“mined”) as blockchains which are digital records of transactions. Those blockchains are bought or mined and stored in digital crypto “wallets”.

What are NFTs?

NFTs (non-fungible tokens), like cryptos, are digital assets created as blockchains.

Unlike cryptos, they represent real tangible things other than money (e.g artwork, collectibles, even designer sneakers). Since they are usually unique or one of a kind they are non-fungible,

NFTs cannot be copied. An original NFT of a Picasso cannot be reproduced on a copy machine. So converting a Picasso to an NFT does not diminish the value of the original painting.

Can a buyer of a Picasso NFT download the painting and hang it on his wall? If not, why is it worth any more than a photo of Picasso?

These are questions an investor in NFTs will have to answer because an art object is worth only what someone is willing to pay for it.

Why are UK Regulators Concerned?

Amid the explosion of cryptocurrency exchanges and trading, the UK is concerned about losing control of monetary policy.

Also, the stampede for reported huge profits and crypto advertising has attracted unsophisticated investors who cannot afford losses.

Moreover, there has been an acceleration of crypto-related crimes. Scammers are using the internet to sell fake cryptos. Hackers are stealing cryptos from digital wallets. Cryptos are being used by criminals to launder money.

What Regulatory Measures is UK Taking?

The UK is increasingly concerned with the erosion of central bank control of the money supply element of monetary policy. In April 2021, the Bank of England launched a task force to study the possibility of a central bank-regulated digital currency (CBDC). CBDCs could offset the perceived instability and inefficiency of crypto assets.

In the meantime, UK regulation of crypto is evolving as the regulators struggle to keep up with evolving technology.

The Financial Conduct Authority (FCA) is taking the lead in developing suitable regulations.

• Crypto exchanges must register with the Financial Conduct Authority (FCA).

• Crypto exchanges are required by the FCA to comply with the statutory Anti-Money Laundering and Countering the Financing of Terrorism re (AML/CFT).

• In July 2019, the FCA published Guidance on Crypto assets. It sets forth the rules, regulations, and issues applicable to anybody who issues, creates, holds, markets buys or sells cryptocurrency, including cryptocurrency exchanges.

• In January 2022, the UK government announced its intention to crack down on misleading advertising. At a minimum, cryptos will be required to comply with rules applicable to all financial company advertising.

• Presently, stablecoins are currently banned. Stablecoins are tokens backed by precious metals, government-issued money, or other tangible assets. UK regulators are studying possible regulatory measures that could make stablecoins work for the benefit of consumers.

• Regulators are also looking at crypto derivatives. They are currently unregulated. The retail sale of crypto derivatives is currently banned by FCA because they cannot be reliably valued by retail consumers.

Summary:

UK regulators, as well as Parliament, are giving serious attention to possible measures to deal with the problems of cryptocurrency. At the same time, they don’t want to impede innovations that could benefit investors and consumers. Stay tuned.