The UK is a step closer to launching a central bank digital currency

After the publication of a consultation document that explains the planned digital pound, which the general public has dubbed “Britcoin,” the United Kingdom is one step closer to creating a central bank digital currency (CBDC).

The Bank of England (BoE) and the United Kingdom Treasury both contributed to the publication of the 116-page consultation document on February 7th. In addition to that, a technology working paper that delves into the technical as well as economic design issues was published.

CBDCs such as the digital pound may co-exist in what the authors of the article believe to be a “mixed payments economy,” despite the increase of privately-issued stablecoins over the last few years, according to the findings of the paper.

“The digital pound does not need to be the predominate form of money in order to accomplish its public policy aims in the same way that cash coexists alongside private money. It is possible that the digital pound will coexist with other types of currency, such as stablecoins.

Although the Bank of England (BoE) and the Treasury Department (Treasury) have expressed optimism that a digital version of the pound would be introduced by 2025 “at the earliest,” they are not yet one hundred percent positive that this will really occur.

According to the report, “The Bank and HM Treasury assess it is likely to be necessary in the UK to have a digital pound,” however there is currently no decision that can be made to adopt such a currency.

According to the paper, the primary objective behind the launch of the digital pound is to “promote innovation, choice, and efficiency in domestic payments” and to ensure that the money issued by the central bank of the United Kingdom continues to serve as “an anchor for confidence and safety” in the monetary system of the country.

“For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficient adopted by households and businesses,” this quote from the Financial Times reads. “For the digital pound to play the role that cash plays in anchoring the monetary system, it needs to be usable and sufficient adopted by households and businesses.”

Users will have access to e-GBP after they have established a connection to an API that is managed by the private sector and that, in turn, links to the core ledger.

Additional programmability capabilities, including as smart contracts and atomic swaps, which make it possible for assets to be moved across networks, will be made available.


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UK Watchdog Proposes Tougher Advertising Rules

According to the United Kingdom’s financial watchdog, newly proposed advertising rules in the United Kingdom could potentially see executives of crypto firms facing up to two years in prison for failing to meet certain requirements around promotion. These executives would be in violation of the rules if they failed to meet any of the aforementioned requirements.

The United Kingdom’s Financial Conduct Authority (FCA) issued a statement on February 6 in which it revealed that if the proposed “financial promotions regime” is approved by Parliament, then all crypto firms within the country as well as those located outside of it would be required to adhere to certain requirements when advertising their crypto services to customers in the United Kingdom.

According to the Financial Conduct Authority (FCA), “cryptoasset enterprises selling to UK customers, including those operating abroad, must be ready for this regime.”

“Taking immediate action will assist guarantee that they can continue to lawfully advertise their products to customers in the United Kingdom.” As a part of their preparations, we strongly advise businesses to get any and all guidance that may be required,” the statement said.

If the FCA’s proposed regulatory framework is implemented, companies dealing in cryptocurrencies would be required to get prior authorisation from the FCA before advertising their services, unless they qualified for an exemption under the Financial Promotion Order.

According to the governing body, a “cryptoasset firm” in the United Kingdom may only advertise and sell its products and services to clients via one of the following four channels:

According to the regulatory body, any marketing that is carried out outside of these channels would be in violation of the Financial Services and Markets Act of 2000 (FSMA), which has a criminal penalty of up to two years in jail for each offence.

“We will take tough action where we detect companies advertising cryptoassets to UK consumers in contravention of the rules of the financial promotions regime,” the Financial Conduct Authority (FCA) stated in a statement. “We will take action against firms that promote cryptoassets to UK consumers.”

Companies found to be in violation of the new regime risk having their websites taken down, receiving public warnings, and being subjected to further enforcement measures. In addition to the possibility of serving time in jail for its executives.

The Financial Conduct Authority (FCA) has said that they would wait until “necessary legislation” is passed before publishing “our final guidelines for crypto asset promotions.” This might perhaps indicate that the financial promotions regime will undergo upgrades or adjustments in the future.

According to the Financial Conduct Authority (FCA), “Subject to any changes in circumstances, we plan to adopt a similar approach to crypto assets to that outlined in our new regulations, which will be in force from February 1 2023 for other high-risk investments.”


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The U.K. government is recruiting for a head to its central bank digital currency project

The economic and financial ministry of the United Kingdom’s government, known as His Majesty’s Treasury, is in the process of hiring a head of central bank digital currency (CBDC) to oversee the creation of a digital version of the pound.

It has been said that the task is “important, difficult, and cross-cutting,” and that it would “need considerable collaboration within and beyond the HM Treasury.”

The argument for a digital pound is being investigated, as stated in the LinkedIn post, by the CBDC Taskforce, which is a collaboration between the Bank of England and the Treasury of the United Kingdom.

It is possible that the position of head of CBDC will bring the government of the United Kingdom one step closer to achieving its goal of implementing a CBDC.

A CBDC, often known as a digital pound, is not too distant from this.

Numerous nations all over the globe are investigating this and attempting to comprehend the advantages of this system in comparison to the one that is now in place; it is reasonable to assume that this will eventually take place.”

Indeed, the shift toward a digital pound is consistent with the trend of central banks all over the globe to investigate the possibilities presented by CBDCs.

The European Central Bank (ECB) has been doing extensive research on the possibility of a digital version of the euro, and many countries, like Sweden and Denmark, are also investigating the possibility of developing their own national digital currencies.

CBDCs make the claim that they can provide a variety of advantages, such as expanded financial inclusion, decreased costs for companies and customers, increased security and efficiency in the payment system, and so on.

Tony Yates, who served in a senior advisory role at the Bank of England in the past, has expressed his opposition to CBDCs.

We are concerned that there may be political pressure brought to the process that ignores or significantly downplays the risks that a CBDC poses to society. Resonating the thoughts of Dewar, he questioned the motivations behind the global rollouts of CBDCs, calling them “suspect”. In general, we are concerned that there may be political pressure that is brought to the process.”

The “digital” nature of money is another component that is called into question.

The United Kingdom is becoming an increasingly cashless and digital society: According to the Bank of England, less than 15% of payments are done using physical cash, and as many as 23 million individuals, which is almost one-third of the population in the United Kingdom, did not use cash at all in the year 2021.

When Scott questions the Treasury about a digital pound, Scott says, “Don’t we already have one?” 

Therefore, as soon as they have completed their exploratory phases, I would love to see a list of the advantages and new features that a CBDC will provide to the general population.”

Scott will “continue to concentrate on Bitcoin and establishing a worldwide, interoperable system that everyone can participate in” in the interim.

Dewar suggested that there is still a chance for Bitcoin and the government of the United Kingdom by saying, “The role description notes that the emergence of private sector money—such as Bitcoin—offers exciting opportunities for U.K. businesses and consumers, and we would very much agree with that at Bridge2Bitcoin.” There is still a chance for Bitcoin and the government of the United Kingdom.

Although there is currently no formal timetable in place, the Bank of England CBDC is intended to be made accessible to citizens of the United Kingdom.


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The UK’s Regulatory Policy Committee is Against the FCA

There is a lack of consensus among those who make decisions on public policy in the United Kingdom over whether or not retail investors should be barred from purchasing, promoting, or distributing derivatives and exchange-traded notes (ETNs) that are linked to cryptocurrencies.

The Regulatory Policy Committee is of the opinion that the measure, which was implemented in 2021, cannot be justified given the present state of affairs. In January of 2021, the restriction was enforced by the Financial Conduct Authority (FCA), which is the primary regulatory body in the United Kingdom.

Since that time, businesses are not permitted to sell bitcoin derivatives products to retail clients. These products include futures, options, and exchange-traded notes (also known as ETNs).

In spite of the fact that 97% of people who responded to the FCA’s consultation opposed the “disproportionate” prohibition, the FCA went ahead and enacted the blanket ban anyway. Many of the respondents argued that retail investors are capable of evaluating the risks and the value of crypto derivatives.

The Regulatory Policy Committee (RPC), which is an advisory public body that is sponsored by the Department for Business, Energy and Industrial Strategy of the United Kingdom government, presented its arguments against the FCA’s restriction on January 23.

The RPC conducted a cost-benefit analysis and determined that the yearly losses caused by the policy were about 333 million dollars (or 268.5 million British pounds).

According to the RPC, the FCA did not offer a detailed description of the particular events that may take place in the event that the restriction was not in place.

In addition, it failed to provide an explanation of the methodology and calculations used to assess the costs and benefits at the time.

In light of this, the RPC assigns the ban the “red” rating, which indicates that it does not fulfil its intended function.

The unfavourable evaluation provided by the RPC does not automatically result in the immediate repeal of the Act.

In spite of this, given that the committee has connections to the Department of Business, Energy, and Industrial Strategy, it is possible that this will signal a difference in understanding of what constitutes fair regulation between the FCA and the government.

The British financial authorities made a number of substantial measures to encourage the growth of the digital economy last year. These efforts were documented in a report.

For instance, “designated crypto assets” were included in a list of investment transactions that are eligible for the Investment Manager Exemption. This exemption is for investment managers.


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Clampdown on crypto ads: A one-off or a new phase of global regulation?

Over the last week, regulators in three major jurisdictions across two continents introduced new rules governing cryptocurrency-related promotions and advertisements. Citing consumer risks associated with digital asset investments, authorities in the United Kingdom, Singapore and Spain tightened the requirements around crypto firms’ marketing messaging and customer recruitment practices. While some experts view this emerging trend as a sign of a new global phase of cryptocurrency regulation, questions about the efficiency and universal applicability of this approach persist.

New measures

In the United Kingdom, Her Majesty’s Treasury issued a report summarizing the results of a public consultation on crypto-asset promotions, published in July 2020, as well as the government’s further steps in bringing such promotions within the regulatory perimeter. The key takeaway here is that crypto-related marketing messages are to be included in the scope of the Financial Promotion Order, meaning that the same rules will apply to them as those governing promotions of traditional financial products.

The National Securities Market Commission, Spain’s chief securities regulator, announced a new set of requirements that will apply to digital asset firms targeting 100,000 people or more with their ads, as well as those relying on social media influencers to promote their products and services.

In both the U.K. and Spain, regulators will require crypto promotions to abide by the principles of clarity and fairness while also prominently featuring risk disclosures. Ads’ sponsors will also have to either seek pre-approval (U.K.) or notify the authorities (Spain) of the upcoming campaigns.

The guidelines issued by the Monetary Authority of Singapore feature even more severe limitations. Essentially, the regulator will allow digital asset service providers to advertise solely on their own platforms, while physical ads in public spaces or using third parties such as social media influencers are entirely off limits.

Drivers of the new approach

Up until recently, regulators largely afforded crypto firms a wide latitude as far as promotional activity was concerned. If anything, it was big tech firms that experimented with censoring crypto-related ads on their platforms. Now, financial regulators are moving into the front seat.

Nathan Catania, partner at digital asset firm XReg Consulting, sees this development as a sign of a shifting regulatory landscape. Catania commented to Cointelegraph:

Jurisdictions that have ironed out AML/CFT regimes are now looking at other prominent crypto risks and it is clear that consumer protection is high on the agenda. Many large crypto players have been ramping up advertising campaigns in the last year or so and this is drawing the attention of policymakers and regulators who will want to ensure that these adverts are not misleading consumers.

In an XReg’s report on the topic, Catania and his colleagues further argue that the crypto industry players “can expect regulatory authorities in other countries to follow suit in the coming months,” noting that the wave of restrictions on crypto promotions can represent the “second phase of crypto asset regulation,” focused on consumer protection.

Indeed, one way to look at the intensifying regulatory attention to digital asset promotions is that there exists a logical sequence of measures to which governments assign varying levels of priority. Another interpretation seems feasible as well, whereby authorities simply react to an emerging reality, regardless of whether they consider the more fundamental regulatory boxes successfully checked.

Naturally, the growth and mainstreaming of the digital asset space in recent years resulted in crypto businesses expanding their outreach to audiences far beyond the original core of the movement. While the exact numbers are difficult to pin down, it is clear that in the past year the volume of crypto ads across many countries and platforms — from Indian TV to London’s public transport — has massively increased.

In the light of these dynamics, as regulators’ thinking goes, it is likely that people with insufficient understanding of crypto as an asset class will get exposed to bad-faith promotional messages. Some of them could then be tempted to invest or otherwise participate in digital finance without being fully aware of the risks.

A global trend?

Reliable data on the effects of the new restrictions on crypto promotions is unlikely to appear anytime soon, and at this point it is impossible to tell whether it will have major effects on people’s financial wellbeing or crypto companies’ bottom line.

Changpeng Zhao, CEO of crypto exchange Binance CEO, opined that the growing trend will not affect the demand for digital asset products because word of mouth is the primary marketing tool in this space.

It is also not warranted that the regulatory concern for cryptocurrency promotions will be equally distributed geographically. For one, in the United States, there are currently few signs of crypto ads being in government watchdogs’ crosshairs.

Raul Garcia, financial services principal at Florida-based accounting services firm Kaufman Rossin, noted to Cointelegraph that in the United States, regulatory focus is on taxation and investor protection, whereas promotional messages remain outside of the scope of the authorities’ attention. Garcia commented:

Everywhere you look in the U.S. there’s something about crypto, they’re advertising […] And I really don’t see any strong resistance, any limit to crypto promotion or anything like that. Too much money to be made!

The difference between the jurisdictions ramping up cryptocurrency ads oversight and the U.S. can be attributed to the heightened focus on consumer protection characteristic of many European nations and Singapore versus the American free-market focus. All other regulatory considerations held equal, more relaxed rules for digital asset promotions could make the U.S. a more attractive destination for crypto companies in the future.