In the wake of Web3 firms departing the United States due to regulatory uncertainties, the United Kingdom has a unique chance to seize the moment. Earlier, the U.K. might followed the same approach and passed the crypto regulation bill, as reported by Todayq News on June 30, 2023. This bill was passed to attract crypto companies from the United States, as these companies are continuously facing legal challenges.
A recent report published by an organization called a Think Tank (a group of experts convened by an organization, often a government, to analyze issues and devise solutions) offers 10 key proposals for the UK government to enhance its regulation of Web3 technologies.
One significant proposal is aimed at protecting individuals who hold tokens in decentralized autonomous organizations (DAOs). It highlights the recent U.S. ruling that holds any American who owns or has owned tokens in DAOs accountable for any legal violations committed by the DAO. The report suggests limiting such liabilities in the UK.
Flexible KYC requirements and innovation adoption
Additionally, the report also recommends that the UK’s primary financial regulator, the Financial Conduct Authority (FCA), adopt a more flexible approach to its Know Your Customers (KYC) requirements. This would involve allowing the use of innovative methods like digital identities and blockchain analytics tools.
To further bolster its position in the Web3 space, the UK is advised not to overly regulate self-hosted wallets or classify proof-of-stake services as financial services. The report also suggests permitting private stablecoin issuers to store stablecoin reserves in the Bank of England and establishing a “tax Wrapper” for crypto exchanges.
UK’s shifting regulatory landscape
In response to recent regulatory developments, the UK has taken a stricter stance on digital assets. Measures include considering a ban on promoting crypto investments by His Majesty’s Treasury and the FCA’s warnings to local crypto businesses to adhere to marketing rules.
Additionally, the UK’s National Crime Agency (NCA) recruited crypto investigators in August to address increasing crimes and enhance cryptocurrency market regulation. They also filled the role of Digital Assets Disclosure Officer within the Complex Financial Crime Team (CFCT), as reported by Todayq News on August 8, 2023.
As the Web3 landscape continues to evolve, the UK faces a pivotal moment to shape its regulatory framework and attract innovative companies in the sector. These proposals aim to strike a balance between fostering innovation and ensuring responsible regulation in the Web3 space.