Q&A: Professional Negligence and Cryptocurrency (Part 3)

Q3: What does the future look like for crypto exchange regulation?

The European Parliament recently approved a raft of new regulations, and further due diligence checks will be required. In the UK, the government has announced its intention to produce plans to regulate crypto asset activities. Other plans include strengthening the rules for crypto trading platforms and creating a regulatory regime for crypto lending.

The government is looking to place standards on crypto exchanges and strengthen the rules regarding those responsible for conducting transactions and storing customers’ crypto assets. New legislation means “for the first time in British history, digital holdings including cryptocurrency, non-fungible tokens such as digital art, and carbon credits can be considered as personal property under the law”.

The Financial Conduct Authority (FCA), the UK's regulatory body for financial markets, has already taken steps to regulate cryptocurrencies to protect consumers and prevent financial crime. The regulatory framework is based on the existing activities of regulated trading venues. The government is also proposing a crypto asset market abuse regime based on elements of the Market Abuse Regulation.

The UK government must ensure that any measures it introduces do not deter those who would otherwise be interested in exploring that particular market. If companies operating in the cyber space were to find themselves facing increased compliance costs, or even the possibility of them, as a result of government measures, they should think twice before expanding or even continuing. Much will depend on the FCA’s approach to regulating cryptocurrencies, striking a balance between protecting consumers and promoting innovation.

English courts are becoming more sympathetic to the plight of victims.