AFME calls for regulatory certainty on the treatment of crypto assets

The Association for Financial Markets in Europe (AFME) has called for UK authorities to provide regulatory certainty on the treatment of crypto assets in its response to HM Treasury’s consultation on the UK approach to crypto assets and stable coins.

AFME has also pushed for a review of existing financial services legislation to identify and address obstacles to distributed ledger technology (DLT) innovation.

The association has recommended a more “granular crypto-asset taxonomy” to clarify the treatment of existing use cases that will support the UK approach to fulfil regulatory objectives and encourage innovation.

This will support greater certainty on which regulations apply to the different categories of crypto-assets that exist today, affirms the association.

In addition, AFME recommends utilising the framework and definitions provided in the Global Financial Markets Association (GFMA) ‘Approach to the Classification and Understanding of Crypto-assets’ to develop this taxonomy.

The GFMA approach has been developed by the industry and is an important tool for clarifying what types of assets are intended to be included in and out of scope of the regulatory perimeter.

AFME comments: “This is important for bringing legal certainty to market participants in how different crypto-asset products and services in the markets today will be treated under new or existing regulations.”

According to the association, there is an important opportunity for HMT and relevant UK authorities to create a regulatory environment that delivers digitisation of UK capital markets.

Digitisation can lead to benefits for end users, and wider market participants, by bringing innovative new products to market, increasing operational efficiencies, and reducing risk, explains AFME.

Consequently, the association is encouraging UK authorities to send a “strong signal” to the market that they are committed to pursuing digitisation in UK capital markets to foster innovation and promote long term investment in new technologies.

“We welcome UK authorities in bringing all crypto-assets within the scope of anti-money laundering/counter-financing terrorism (AML/CFT) and financial promotions requirements; bringing stable tokens in scope of new, and proportionate, risk-based requirements; and seeking industry input on the regulatory barriers for DLT adoption in wholesale markets,” says AFME.

Additionally, AFME encourages UK authorities to act quickly at this early stage of development, and in collaboration with the industry, to identify any barriers to DLT adoption and to provide regulatory certainty on the treatment of different types of crypto assets.

Last September in a paper, European Capital Markets in the Digital Age, AFME stressed the need for the European Commission to promote innovation, competitiveness, and resilience across Europe’s capital markets.

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