UK Treasury's Regulatory Sandbox May Exclude Derivatives and "Unbacked" Tokens

The United Kingdom Treasury, also known as His Majesty's (HM) Treasury, may exclude unbacked crypto assets and derivatives from its sandbox for digital securities.

The news came from a recent paper aimed at investigating potential regulation for novel financial products.

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The paper, published by Her Majesty's Treasury on July 11th, discusses the creation of regulatory sandboxes under the UK's Financial Services and Markets Act. Such sandboxes offer a controlled environment for firms to test their products and services as lawmakers consider their regulatory status. 

Despite this, the sandbox might not cover derivatives and unbacked crypto assets, like Bitcoin (BTC) and Ether (ETH). The regulators believed that as regulatory frameworks for these assets are still evolving, they should be excluded from the proposed sandbox's scope. The UK Treasury will consider feedback on these digital security sandbox proposals until August 2023.

The treatment of cryptocurrencies like Bitcoin and Ether has been a contentious issue among UK lawmakers, with some classifying them as "unbacked." There have been suggestions to regard such tokens more like gambling than traditional assets. Regarding the matter, the Treasury noted:

Until there is more certainty in these frameworks, we are intending to utilize existing regulatory initiatives to develop policy and regulation for this asset class.

The Financial Services and Markets Act mandates that cryptocurrency businesses in the UK adhere to specific guidelines designed to foster innovative technologies while safeguarding consumers.

The Financial Conduct Authority, the UK's financial watchdog, has cautioned firms that the framework will only sanction "four routes to lawfully communicate cryptoasset promotions" from October 2023 onward.

It is evident that the landscape of cryptocurrency regulation in the UK is evolving and complex. It will be interesting to see how the UK Treasury's proposed digital securities sandbox navigates this intricate regulatory scenario.