The Edinburgh Reforms are the first set of post-Brexit changes to UK financial regulations with the aim of unlocking investment and growth. The reforms signal regulators’ intent to engage with crypto and end the ‘Wild West’ it is sometimes seen to be. By creating a regulatory framework that adequately protects consumers while remaining friendly to industry interests, the changes will bring crypto out of the shadows – building confidence in the industry and facilitating growth.
FCA regulators look to safeguard crypto investors
The reforms look to build on measures announced within the Financial Services and Markets (FSM) Bill that aim to create a safe regulatory environment for stablecoins – cryptocurrencies whose value is pegged to another asset, reducing volatility – to allow them to be more effectively utilised in payments and bring a broader range of crypto activities under UK regulations. The purpose of this is to foster innovation by establishing regulatory oversight and consumer protection measures, traditionally lax in crypto markets, to stimulate investment through greater confidence in the industry. Specific areas of regulation are yet to be confirmed but could include advertising restrictions or fraud-prevention measures. This will be welcome to many who have been battered by scandals and fraud over the years.
Tax exemption will support investment in UK crypto funds
Further changes look to include crypto assets in the investment manager exemption, liberating global investors from UK tax on their investments with UK asset managers in the space. Together with regulatory changes, this aims to make the UK a safe and competitive hub for crypto. This adds an additional draw for oversea funds to base themselves in the UK, and wealth and asset managers should look to maximise the strength of their crypto offerings to take full advantage of the opportunities this presents as the UK becomes a more competitive crypto asset management destination. With cryptocurrencies market penetration at 43% for mass affluent investors, according to our Investor Insights: Investment Drivers Analytics 2022 dashboard – and likely higher for HNW individuals – the sector is already moving towards the mainstream. The first movers in this space are likely to reap substantial rewards.
Much remains vague, but the early signs are positive for the UK’s future in crypto assets. By facilitating greater trust in the industry, the UK can expect increased investment in the sector, leading to faster technological adoption and the creation of new use cases and innovative products for consumers. This, as well as reforms to the tax treatment of crypto funds, will draw both domestic and foreign capital to UK markets – a boon for asset managers as well as wealth managers that take this opportunity to expand their product offerings. Despite the immediate risks in crypto markets, there may yet be light at the end of the tunnel.