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UK Treasury plans to exclude derivatives and ‘unbacked’ tokens from regulatory sandbox

The Treasury Department of the United Kingdom has proposed excluding unbacked crypto assets and derivatives from its plans for a digital securities sandbox.

In a consultation paper released on July 11, HM Treasury said the regulatory sandboxes that will be established under the country’s Financial Services and Markets Act will provide the U.K. government the time to modify existing legislation, if needed, for crypto products. The proposed framework was aimed at giving firms the opportunity to operate as Parliament considers where its products or services may fall under existing regulations.

However, according to the consultation paper, these considerations may not extend to “unbacked” crypto assets for which regulations were still evolving, as well as for derivatives. Treasury said it would consider feedback on its proposed digital securities sandbox until the consultation ends in August 2023.

The framework suggested that assets such as Bitcoin (BTC) and Ether (ETH) may not qualify under the Treasury initiative. U.K. lawmakers have previously labeled the cryptocurrencies as “unbacked” and argued for them to be treated as gambling.

“Until there is more certainty in these frameworks, we are intending to utilise existing regulatory initiatives to develop policy and regulation for this asset class,” said Treasury, in reference to unbacked tokens.

Related: UK Law Commission recommends ‘distinct’ legal category for crypto

Under the Financial Services and Markets Act, crypto companies operating in the U.K. will have to comply with certain guidelines aimed at promoting innovative technologies while protecting consumers. The country’s Financial Conduct Authority issued a warning to firms that the framework would allow only “four routes to lawfully communicate cryptoasset promotions” starting in October 2023.

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