UK Treasury Issues a Consultation Paper for Regulating NFTs

Providers of non-fungible tokens (NFTs) in the UK might be forced to register with the UK financial market regulator, the Financial Conduct Authority (FCA).

The UK Treasury issued a consultation on money laundering where it highlighted the need for these providers to comply with the set guidelines. This requirement comes despite these providers not offering any financial services.

The UK government has been looking to reign in on regulations in the cryptocurrency industry. The recent announcement by the UK Treasury only goes to show the extent to which regulators are willing to go to regulate this industry.

NFT Providers Might Need to Register with the FCA

Last year, the UK government hinted at plans to ensure that cryptocurrency exchanges and custody providers can comply with the new crypto regulatory framework.

Under the current regulatory regime, crypto firms must register with the FCA. These guidelines involve setting safeguards to protect against money laundering and terrorism financing. Crypto firms seeking to operate in the UK have to comply with these requirements.

The new crypto framework seeks to revamp this entire process, and it might no longer be mandatory for firms to make this registration.

Nevertheless, the new framework lacks coverage. The cryptocurrency industry includes assets that do not involve financial services or transactions including NFTs. The consultation paper published by the UK Treasury acknowledges this discrepancy.

NFTs are unique tokens created on a blockchain. These assets can be used as a representation of a physical object such as art.

According to the UK Treasury, firms offering NFT services will have to register and be supervised by the FCA to ensure that they are complying with anti-money laundering and counter-terrorism financing laws.

The NFT Regulatory Regime

UK financial market regulators passed the Financial Services and Markets Act in 2023. This guideline paved the way for cryptocurrencies to be regulated as a financial activity.

However, in October, the UK government submitted a consultation response saying NFTs could not be regulated as a financial service. At the time, the government said these digital assets could only fall under the regulatory purview if they could be used to conduct regulated financial activities.

The new consultation document says that the number of firms that might need to become registered with the regulators could increase as the industry continues to grow. The UK government is also looking to gather responses on the proposed regulatory regime by June 9.

If the proposals pass, it will mark the launch of some of the toughest regulatory frameworks for cryptocurrencies in the UK. The proposals come as the EU gears up for the implementation of the Markets in Crypto Assets (MiCA) framework.