The U.K. Treasury has recently unveiled its regulatory strategy for the crypto industry. The new approach will be implemented in multiple phases, with the first phase focusing on fiat-backed stablecoins. This article will delve into the details of the U.K.’s regulatory plan and analyze its potential impact on the crypto market.
The initial phase of the U.K.’s regulatory approach centers around fiat-backed stablecoins. The government aims to facilitate and regulate the use of these stablecoins within the country’s payment chains. Fiat-backed stablecoins are defined as digital currencies that maintain a stable value by being pegged to one or more specified fiat currencies. The Treasury emphasizes that only stablecoins backed by traditional fiat currencies will be recognized.
The regulatory measures for fiat-backed stablecoins will fall under the Payment Services Regulations 2017 and the Financial Services and Markets Act 2000. The Financial Conduct Authority (FCA) will have primary oversight of activities related to stablecoins, ensuring consumer protection and risk mitigation. The collaboration between the Bank of England, the FCA, and the Payment Systems Regulator (PSR) aims to minimize potential risks and overlaps in the regulatory framework.
In the second phase of the regulatory approach, the U.K. will extend its regulatory framework to encompass a broader range of cryptoasset activities. This includes the regulation of exchange activities, custody activities, lending activities, and market abuse. The phased approach allows flexibility for firms engaged in different aspects of cryptoasset activities.
The U.K. government emphasizes that it will not classify unbacked cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) under the same regulations as gambling. Instead, the focus will be on regulating activities related to cryptoassets, such as trading, custody, and lending. The goal is to create a comprehensive regulatory framework that aligns with international standards and best practices.
The U.K. intends to establish equivalence measures for overseas firms operating within the country, particularly crypto exchanges. This means that overseas-regulated trading venues can apply for authorization for their U.K. branches, with the FCA overseeing the process. The aim is to attract global crypto-asset businesses and create a conducive environment for their operations.
The regulatory framework clarifies the treatment of non-fungible tokens (NFTs). Unique NFTs resembling collectibles or artwork will not be subject to financial services regulation. However, NFTs used as exchange tokens, especially those with limited price variation, might fall under future financial services rules.
Regarding decentralized finance (DeFi), the U.K. government acknowledges its potential and commitment to supporting its growth. However, it considers regulating the DeFi sector as premature, as it could stifle innovation and hinder its development. The government aims to strike a balance between regulation and fostering a thriving DeFi ecosystem.
The U.K.’s finalized regulatory framework for the crypto industry represents a significant milestone for the country. With a clear roadmap in place, the crypto industry and relevant stakeholders can anticipate a well-defined and regulated environment in the near future. The phased approach allows for flexibility and ensures that risks associated with cryptoassets are addressed while supporting innovation and growth in the sector. Overall, the U.K.’s regulatory approach aims to establish itself as a leading global destination for crypto-asset businesses.
