AFME calls for rethink on UK’s crypto custody rules

The Association for Financial Markets (AFME), a UK-based trade group representing wholesale markets, has called on the UK’s financial regulators to reconsider its proposed rules changes to the custody of crypto assets.

AFME’s concerns have arisen from the recent consultations between the Financial Conduct Authority and the Bank of England on the regulation of stablecoins.

While the association welcomes the plan to bring stablecoins into the “regulatory perimeter” as a positive step that will promote confidence in DLT-based capital markets, the design of the rules will have negative consequences for wholesale markets, stated AFME.

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More specifically, the FCA’s discussion paper proposes changes to the custody rules for other crypto assets which meet the current definition of specified instruments, said AFME managing director of technology and operations James Kemp.

“These instruments, which include security tokens, are inherently securities and should be treated as such throughout their lifecycle,” said Kemp. “To preserve market functioning, it is important that they are not subject to the separate regulatory treatment and territorial scope for custody proposed by the FCA.”

Consequently, the association, formed in 2009 from the merger of London Investment Banking Association and the European activities of the US-based Securities Industry and Financial Markets Association, is calling on the UK Treasury and the FCA to reconsider rules that it believes will undermine the status quo for the provision of custody services unless changed.

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“The territorial scope of regulated custody activities should not deviate from current market practice,” suggests AFME. “We disagree with the proposed expanded territorial scope to capture relevant cryptoasset activities undertaken from outside of the UK.

“This proposed treatment would represent a significant departure from the way the territorial scope for regulated financial services activities (including the custody of security tokens) is currently determined under the UK framework.”

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