The UK government commenced a consultation on crypto-assets in early 2021. This past week, the UK government indicated its intent to acknowledge stablecoins as valid forms of payment while aiming to emerge as the world’s top crypto hub. This stands in stark contrast to the meandering approach taken by the US where the Chairman of the SEC, Gary Gensler announced this week he was asking staff to review how to get crypto firms “registered and regulated” most likely forced into a compliance regime created before the internet existed.
The UK government has provided a summary of its approach:
“Stablecoins are a form of cryptoasset which aim to maintain a stable value relative to other assets. The government has confirmed its intention to legislate to bring certain stablecoins, where used as a means of payment, into the regulatory perimeter. This document summarises feedback to the consultation, and outlines further detail regarding how the government intends to regulate certain stablecoins. The document also outlines the feedback received to the call for evidence on the investment and wholesale uses of distributed ledger technology, and sets out the government response, including further thinking on the development of the Financial Market Infrastructure Sandbox.”
The UK government believes that stablecoins have the potential to become a popular means of payments, creating efficiencies and removing existing friction. A future consultation is anticipated later this year to review the regulation of other crypto activities with the expectation that the UK will “take a leading role” in the ecosystem.
“The government will ensure sufficient flexibility is built into the UK’s regulatory framework to allow regulators to adapt rules and requirements as international work concludes, benefiting too from the agility that will be afforded to UK financial services legislation by the Future Regulatory Framework.”
The “substantial benefits” and “transformative impact” of distributed ledger technology (DLT) need to be managed effectively but the government intends to support the technology and its use in the financial services industry – including tokenization. The government states that it will work collaboratively with the industry to support firms intending to leverage blockchain to provide services. A Financial Market Infrastructure (FMI) Sandbox will be launched in 2023.
Crypto industry participants understand the vital importance of appropriate regulation in building a sustainable ecosystem. The UK government is positioning itself as a partner, not an adversary, of innovative crypto firms. This inevitably means a certain degree of risk, but change is always difficult, even more so in a highly regulated industry. But public officials have acknowledged their belief that the digital asset ecosystem is here to stay, along with potential benefits for consumers and businesses.