The United Kingdom is forging ahead with its agenda to impose regulations on the cryptocurrency sector, particularly focusing on stablecoins, as part of its efforts to enhance supervision of the digital asset market.
On Monday, the Treasury unveiled its response to a consultation regarding the future of rules governing the cryptocurrency industry. This initiative is in line with the government’s objectives of strengthening safeguards for investors and attracting digital token investments to London.
Stablecoins, a subset of cryptocurrency tokens, are tethered to established currencies and serve as a means of facilitating digital transactions.
The Prime Minister, Rishi Sunak, has been a strong advocate for the UK to become a leading global hub for cryptocurrencies. Nonetheless, there has been mounting friction with the Financial Conduct Authority (FCA) as the regulatory body endeavors to fortify protections for consumers.
Over the past year, the call for stricter regulations has intensified, spurred by the collapse of the prominent FTX exchange, resulting in substantial financial losses for thousands of investors.
The Treasury underlined that its proposals were shaped by recent occurrences, including the demise of FTX, and they intend to introduce secondary legislation for the new rules in early 2024.
Under the proposed framework, stablecoins will be subject to the same regulatory standards as conventional payment service providers, governed by the Payment Services Regulations.
The world’s largest stablecoin by market capitalization, Tether’s USDT token, which is pegged to the US dollar, currently boasts a market cap of $85 billion.
The issuance and custody of stablecoins, particularly those originating in the UK, will fall under the regulatory scope of the Financial Services and Markets Act.
The Treasury emphasized that “certain stablecoins have the potential to become a widespread means of retail payment, driving consumer choice and efficiencies.”
The government is also looking to regulate the broader cryptocurrency industry, encompassing custodians responsible for safeguarding crypto assets on behalf of investors, and imposing requirements on exchanges to disclose all the tokens they list.
However, some experts in financial regulation have voiced reservations about the feasibility of these new proposals. Jonathan Cavill, a partner at the law firm Pinsent Masons, stated, “It’s unlikely that crypto regulation will be easily integrated into the existing regulatory framework. Significant time, financial resources, and careful consideration will be necessary to implement this quickly.” He further pointed out that these rules were likely to reshape the industry’s structure and development, emphasizing the considerable cost and time associated with regulatory compliance.
The government contends that the cryptocurrency industry should adhere to standards equivalent to those expected of established financial service activities, commensurate with the risks they pose. They further believe that the regulations will encourage growth and innovation within the sector while simultaneously mitigating financial stability risks and safeguarding consumer interests.