On Friday, the UK’s Treasury announced a pivotal regulatory amendment: the act of staking tokens to accrue rewards will no longer be classified as a collective investment scheme.
This change, eagerly anticipated by the cryptocurrency sector, liberates staking from the extensive regulatory demands typically associated with such schemes, providing much-needed clarity to cryptocurrency firms, exchanges, and Decentralised Finance (DeFi) protocols.
Tim Lowe, a strategic advisor at Bitwise Onchain Solutions, which offers institutional staking services, commented to DL News, “This indicates the UK’s commitment to investing resources into deciphering a complex industry that is at the cutting edge of both technological and financial innovation.”
Although Lowe acknowledged that this amendment alone will not significantly impact individual investors, he stressed its potential to bolster overall investor confidence in digital assets.
This regulatory shift arrives against a backdrop of recent challenges that have undermined confidence in the UK’s cryptocurrency industry, despite the US seeing a resurgence under President Trump.
Just last week, it was reported that Andreessen Horowitz, a prominent Silicon Valley venture capital firm with substantial investments in crypto, is shuttering its London office.
Previously in 2022, the Conservative government unveiled ambitions to establish the UK as a global cryptocurrency hub. Proposed initiatives included the regulation of stablecoins and the creation of a “financial market infrastructure sandbox” to foster innovation. However, these plans failed to come to fruition.
Following a sweeping victory last July, the Labour Party, now in power, has not prioritized digital assets in its policy agenda.
Additionally, the UK’s financial regulator disclosed in August that out of 34 crypto firm registration applications received over the past year, only four were approved.
In November, Labour announced intentions to accelerate the development of a cryptocurrency regulatory framework, although some industry experts, like Ian Taylor, a board adviser to CryptoUK, believe it may be too late.
Taylor expressed concerns that the UK is lagging behind other European, Asian, and Middle Eastern jurisdictions in crypto regulation.
Instances of regulatory uncertainty impacting firms include PayPal’s temporary suspension of its cryptocurrency purchasing service in 2023, as reported by Reuters, due to compliance updates with new UK regulations, with resumption still pending.
Furthermore, last year saw UK fintech Revolut eliminate its crypto staking service, attributing the decision to the evolving regulatory landscape.
The recent exemption for staking may represent a crucial turning point for cryptocurrency regulation in the UK.
Lowe hopes that regulators will allocate the necessary resources to implement sensible industry regulations, which would not only protect consumers but also position the UK as a leader in digital asset innovation.
The government has expressed intentions to consult with firms on draft legal provisions for cryptocurrency regulations, including stablecoins, in early 2025.
