The United Kingdom’s treasury department has proposed excluding unbacked cryptoassets and derivatives from its plans for a Digital Securities Sandbox. The regulatory sandbox, established under the Financial Services and Markets Act, aims to provide the government with time to modify existing legislation for crypto products. The framework allows firms to operate within certain regulations while awaiting Parliament’s decision on the classification of their products or services.
However, in a consultation paper released on July 11, HM Treasury stated that “unbacked cryptoassets” and derivatives might not be considered under this initiative due to evolving regulations. The proposed exclusion covers assets such as Bitcoin (BTC) and Ether (ETH), which have been labeled as “unbacked” by UK lawmakers who argue for treating them as gambling.
The Treasury intends to utilize existing regulatory initiatives to develop policy and regulation for this asset class until there is more certainty in the frameworks surrounding unbacked tokens. Feedback on the proposed digital securities sandbox will be considered until August 2023.
Crypto companies operating in the UK fall under guidelines outlined in the Financial Services and Markets Act, which aim to promote innovative technologies while protecting consumers. Starting in October 2023, the Financial Conduct Authority will enforce strict guidelines for lawfully communicating cryptoasset promotions, allowing only four designated routes.
This exclusion of unbacked tokens and derivatives from the digital securities sandbox suggests that the UK government is prioritizing regulatory certainty and consumer protection. It also highlights ongoing efforts to establish a distinct legal category for cryptocurrencies in the country, as recommended by the UK Law Commission.
Overall, the proposal reflects the UK Treasury’s cautious approach in developing policies and regulations for cryptoassets. By excluding unbacked tokens and derivatives from the sandbox, the government aims to ensure that adequate safeguards are in place before allowing broader experimentation with these assets within a regulated framework.