The United Kingdom proposed measures on crypto assets and stablecoins in response to the FTX and Alameda Research failure that affected both retail and institutional investors.
Following the collapse of Terra Luna and FTX last year, UK policymakers have committed to introducing a new regulatory regime for crypto assets and stablecoins to ensure sustainable and secure widespread adoption. Last year, UK policymakers worked closely with different financial institutions and other stakeholders in formulating detailed regulatory frameworks for crypto assets and stablecoins.
According to CryptoUK, the trade body formed to represent the digital assets sector in the UK, HM Treasury’s (HMT) recent publication on the future financial services regulatory regime for crypto assets, which was in response to the initial consultation on the management of the Systemic Digital Settlement Assets failure, has provided a clear overview of fiat-backed stablecoins.
Additionally, the country has seen notable demand for fiat-backed stablecoins to reduce the high transaction cost associated with traditional payments.
The Bank of England (BoE) and the Financial Conduct Authority (FCA) on Stablecoins
With the digital pound as the bigger picture, the Bank of England (BoE), working closely with the Financial Conduct Authority (FCA), published a regulatory approach to the stablecoin market and asked the public to provide feedback. Notably, the BoE and FCA have set until February 6, 2024 for the public and respective crypto players to provide their opinions on the proposed regulations for stablecoins.
According to Sheldon Mills, executive director of consumer and competition at the FCA, stablecoins have proven essential in facilitating faster and cheaper payments. Mills added that there has been notable demand from institutional investors looking to offer stablecoins in a regulated manner, making his comments crucial:
“We look forward to continuing our engagement with the government, our partners, and the broader crypto industry as we go, moving forward with the Government’s first phase in developing the UK’s crypto regulatory regime and beyond,” Mills said.
Sarah Breeden, deputy governor for financial stability at the Bank of England, echoed similar sentiments, adding that stablecoin regulatory proposals aim to support safe innovation and ensure public trust.
Regulation of stablecoins is the first step towards broader regulation of crypto assets, the FCA said. The discussion paper detailed possible use cases for stablecoins in the retail and wholesale arena. Their discussion included auditing and reporting, the support of coins owned by the issuer, and the independence of the custodian of the supporting assets.
The paper focused on ways in which the “same risk, same regulatory outcome” principle could be applied. He proposed using the existing client asset regime as a basis for rules on redemption and custody, and the rule source book of senior management arrangements and controls to organize business affairs. There are existing operational resilience and financial crime prevention frameworks, as well as numerous others.
Market Outlook
With more than 31 million cryptocurrency users in Europe, the United Kingdom wants to take advantage of nascent blockchain technology to develop its economy. Furthermore, rising inflation has caused the Central Bank to increase its interest rate amid the ongoing Russian invasion of Ukraine, which has undoubtedly impacted the UK’s economic growth prospects.
Meanwhile, the ongoing crypto regulatory phase in the UK will provide a clear picture for traditional banks and web3 projects to work together. Additionally, some financial institutions led by Chase Bank UK have already banned cryptocurrency-related transactions since the the last few months.
By Leonardo Pérez
