The UK government has published the final proposal for its cryptocurrency and fiat-backed stablecoin regulation. The country plans to introduce comprehensive legislation, which also covers staking services, in a phased approach within the next six months.
As per an update published on Monday, February 19, the government expects to bring other crypto-related instruments and activities, such as algorithmic stablecoin coins, lending, and trading services, into the fold of conventional financial regulation. The new rules will bring relevant activities under the watchful eye of the Financial Conduct Authority (FCA).
UK Introduces Crypto Regulation To Transform The Country Into A Crypto Hub
The policy is in line with proposals made in April 2022 by then finance minister and now prime minister, Rishi Sunak, to transform the UK into a crypto-asset hub. Moreover, industry players are also likely to welcome the regulations after having earlier complained that the government has been “dragging its feet”.
In a press statement, Treasury Minister Andrew Griffith said he was pleased to present the final proposals for crypto asset regulation in the UK that would make the country the “obvious choice for starting and scaling a crypto asset business”.
Last February, the Treasury published a crypto consultation asking for feedback from industry members and experts on rules for protecting consumers that also align with the country’s ambition to become a preferred destination for crypto.
The consultation closed in April, and in June, the government passed the Financial Services and Markets Act (FSMA) that began treating crypto as a regulated financial activity.
The UK has always made it clear that it intends to bring crypto assets within the parameters of traditional financial service regulation, but Griffith has now modified some of his earlier proposals regarding the treatment of cryptocurrencies as well as non-fungible tokens (NFTs).
NFTs Would Not Be Subject To New Crypto Regulation And DeFi Will Not Be Banned
The government document said that the proposed regime “does not intend to capture activities” relating to crypto assets which are “specified investments” that are already regulated, such as traditional securities. Additionally, unique NFTs that are collectibles or artwork would also not be subject to financial services regulation.
However, NFTs used as an exchange token, for instance when released in large quantities at once and do not vary in price, might fall within the financial services rule.
The document further stated that the FCA will soon consult on an authorization regime for crypto companies, and the government is also formulating regulatory measures for overseas crypto firms.
According to the government’s proposal, a crypto entity regulated overseas could apply to authorize its branch in the UK but it will be up to the FCA to determine what this will look like.
Furthermore, the government has no plans to ban decentralized finance (DeFi) activities, noting that it is “premature” to regulate that aspect of the crypto sector.
Issuance Of British Pound-Backed Stablecoins Will Be Overseen By The BOE And FCA
The issuance and custody of stablecoins backed by fiat currency will be regulated under the existing rules designed for financial services. There will be further rules to ensure that the failure of any “digital settlement asset”, including stablecoins, can be safely managed without bringing down the entire financial system.
In November, the Bank of England (BOE) unveiled a set of regulations for stablecoins backed by the British pound that will go into effect sometime this year. The framework developed in collaboration with the FCA will see the BOE overseeing systemic stablecoin, while the financial watchdog governs the broader crypto market.
Treasury Economic Secretary Expects Crypto Law To Be Passed In Next Six Months
While speaking at an event in London hosted by cryptocurrency exchange Coinbase on Monday, Economic Secretary to the Treasury Bim Afolami said the government is working hard to ensure that the crypto regulation is passed ahead of this year’s general election.
He said that the government wants to get it done as soon as possible, predicting that it could become law over the next six months. Afolami remained tight-lipped when pressed for more specific details concerning the upcoming crypto regulation.
The ‘crypto tsar’ under ex-Treasury Secretary Andrew Griffith is a prominent supporter of the industry. His appointment as the Economic Secretary to the Treasury in 2023 and meeting with industry players, such as Coinbase, has helped boost the prospects for proper crypto regulations being enacted in the country.
While the government provided clarity on how it plans to legislate stablecoins and crypto staking, the proposals for regulating crypto exchanges and other industry services are still pending.
