AFME Urges UK Regulators to Reconsider Crypto Custody Rules

The Association for Financial Markets (AFME), a UK-based trade group representing wholesale markets, has urged the UK’s financial regulators to reconsider proposed changes to the custody rules for crypto assets. AFME's concerns stem from recent consultations between the Financial Conduct Authority (FCA) and the Bank of England regarding the regulation of stablecoins. While AFME acknowledges the plan to bring stablecoins into the "regulatory perimeter" as a positive step for fostering confidence in distributed ledger technology (DLT)-based capital markets, it believes that the design of the rules could have adverse effects on wholesale markets.

According to James Kemp, AFME's managing director of technology and operations, the FCA's discussion paper proposes changes to custody rules for crypto assets that meet the current definition of specified instruments. These instruments, such as security tokens, are considered securities and should be treated as such throughout their lifecycle. AFME emphasizes the importance of maintaining market functioning by ensuring that these instruments are not subject to separate regulatory treatment and territorial scope for custody as proposed by the FCA.

As a result, AFME, formed in 2009 through the merger of the London Investment Banking Association and the European activities of the US-based Securities Industry and Financial Markets Association, is urging the UK Treasury and the FCA to reconsider rules that it believes could undermine the existing provision of custody services unless amended. AFME contends that the territorial scope of regulated custody activities should align with current market practices and disagrees with the proposed expanded territorial scope to encompass relevant cryptoasset activities conducted from outside the UK.

According to AFME, implementing the proposed treatment would signify a significant departure from the current method of determining the territorial scope for regulated financial services activities, including the custody of security tokens, under the UK framework. Therefore, AFME calls for a reconsideration of the proposed rules to ensure they align with market practices and support the continued provision of custody services in the UK.

By fLEXI tEAM