Following Katten's first Crypto With Katten London Symposium, we thought that it might be interesting to reflect on the key takeaways from the range of panel sessions we hosted:
Regulation of cryptoassets. The regulatory landscape for cryptoassets varies across the world. On the UK and EU side, we are seeing a more legislation-focussed approach with new bespoke rules for cryptoassets in the pipeline. In the US, however, “regulation by enforcement” is much more prevalent. Recent market events, including the failure of FTX, reinforce the case for effective regulation and sector engagement.
Market abuse. HM Treasury’s recent consultation on the future regulation of cryptoassets in the UK sets out proposed requirements for a new market abuse regime. This will be based on elements of the existing UK Market Abuse Regulation regime for more traditional investments; in-scope instruments will be cryptoassets admitted to trading on UK trading venues and the regime will have extraterritorial effect, to counter market abuse regardless of where the trading took place or the relevant actors were located. There will also be market abuse monitoring obligations for certain market participants.
Central Bank Digital Currency (“CBDC”). The latest development in the potential launch of a UK CBDC is HM Treasury’s and the Bank of England’s publication of a four-month consultation on a “Britcoin”. Although no decision has been taken to introduce a CBDC at this stage, the UK appears to be ahead of other countries (including the US and EU) who are also considering similar proposals to establish local CBDCs.
Cryptoasset investment transactions. Despite valuations dropping for various cryptocurrencies (ranging from 20-70%) and an overall reduction in venture capital funding, M&A activity in this space remained relatively strong in 2022. For 2023, the level of activity has so far dropped off in comparison to 2022 but M&A in this sector is expected to remain healthy, particularly in respect of distressed investments.
Crypto derivatives. ISDA recently published its Digital Asset Derivatives Definitions, addressing how the existing ISDA product definitions might apply to digital asset derivatives. This represents the introduction of the first suite of standard documentation for trading digital asset derivatives, consisting of both the Definitions as well as Digital Asset Confirmations. This is a welcomed relief from the initial lack of standardised documents that market participants had been using during the evolution of the crypto derivatives market.
Cryptoassets tax regime. Given there are no specific UK tax rules on cryptoassets, they are treated in the same way as any other asset. Corporation tax in the UK is charged on profits of trade – in order to determine whether a company is carrying on a trade in cryptoassets it will be necessary to make a factual assessment based on the badges of trade. As of December 2022, the investment manager exemption in the UK has been extended to include transactions in cryptoassets.
Crypto is here to stay! Although the global regulation of cryptoassets is undecided, it was clear from our “Industry Insights” panel with renowned crypto professionals that crypto is here to stay.