“A universal approach” in developing a regulatory framework for digital assets will not work; many nuances must be considered. This conclusion is contained in Andreessen Horowitz (a16z) in its response to the UK government's consultative report.
1/ @a16zcrypto submitted our response to the UK @HMTreasury “Future Financial Services Regulatory Regime for Cryptoassets” consultation. We enthusiastically embrace the UK’s approach for a “proportionate and focused, agile and flexible,” regime. ?. . https://t.co/rT85Xfd8so
— Brian Quintenz (@BrianQuintenz) May 1, 2023
In early February, the country’s Ministry of Finance published a document on preparing the introduction of oversight over cryptocurrency exchanges and lending platforms to ensure they adhere to “fair and reliable standards.”
The ministry aims to mitigate the most serious volatility risks and structural vulnerabilities that affect some business models in the sector, bringing them in line with TradFi.
Under the provisions, crypto exchanges must specify detailed requirements for the content of asset admission documents and disclosures.
The measures also envisage tighter rules for financial intermediaries and custodians.
The agency will solicit views on improving market integrity and consumer protection.
“The one-size-fits-all approach to regulating crypto asset transactions would not align with the Finance Ministry’s core principle of ‘same risk, same oversight’,” — noted by a16z.
The firm’s lawyers proposed unifying the understanding of the decentralization principle in Web3.
According to a16z, the regulatory framework should include “principles-based analysis,” which considers whether the very structure of the platform or protocol has actually reduced the risks. In other words, rules should not unduly hinder decentralization of a project.
The firm urged regulators not to base regulation on the US experience.
“The Washington approach is not to be considered. Britain can successfully implement a principles-based approach to decentralization that promotes broad adoption of crypto assets to spur Web3 innovation, while giving priority to consumer protection,” — said by a16z.
Representatives of the firm called for regulating DeFi apps and businesses, not protocols or software.
“DeFi may present unique risks for which the existing regulatory framework is ill-suited. For this reason, a tailored regulatory framework is optimal… enterprises can understand and comply with jurisdictional rules. Globally available software cannot do this,” — the specialists concluded.
Deputy Governor of the Bank of England John Cunliffe proposed regulating digital assets in the same way as traditional finance. He also noted that decentralized protocols do not yet provide an effective way to manage risks.
In December 2022, Cunliffe called for creating a regulatory framework for cryptocurrencies before systemic problems arise.