HMT has published its response to its January 2021 consultation and call for evidence on the UK regulatory approach to crypto-assets and stablecoins. The response to the consultation confirms the government’s intention to bring activities that issue or facilitate the use of stablecoins used as a means of payment into the UK regulatory perimeter, primarily by amending existing e-money and payments legislation . The government also intends to support the industry by ensuring that regulations can accommodate tokenization and DLT in financial market infrastructures (MFIs), and is developing an IMF Sandbox that will be operational in 2023. A further consultation on the regulation of a broader set of crypto-asset activities is due later in 2022, so it appears plans to fully integrate crypto into the UK’s financial services regulatory framework United are making great strides.
‘….[W]We want this country to be a global hub – the best place in the world to start and grow crypto companies.
(John Glen MP, Economic Secretary to the Treasury, at the Innovate Finance 2022 Global Summit)
Key points of the government response to the consultation and the call for evidence include:
Stablecoins used as a means of payment will be integrated into the UK regulatory perimeter
- The government has confirmed its intention to bring activities that issue or facilitate the use of stablecoins used as a means of payment into the UK regulatory perimeter, mainly by amending existing legislation on electronic money and payments.
- The government considers that an amended e-money framework (in accordance with the Electronic Money Regulations 2011 and the Payment Services Regulations 2017) can provide a consistent framework to regulate the issuance of stablecoins and the provision of wallets and daycare services. The FCA will be given appropriate powers over stablecoin issuers and other entities, including wallet providers. The approach will ensure convertibility into fiat currency, at par and on demand. FCA guidelines and rules will detail the requirements that apply to specific activities.
- The government plans to extend the applicability of Part 5 of the Banking Act 2009 to include stablecoin activities, to be applied in cases where the risks posed have the potential to be systemic and the supervisory threshold of the Bank of England (BoE) is therefore reached. For entities authorized by the FCA and recognized under the Banking Act, the BoE will be the lead prudential authority.
- The scope of the Financial Services (Banking Reform) Act 2013 will be extended to ensure that relevant stable payment systems are subject to appropriate competition regulation by the Payments Systems Regulator (PSR).
- The government will introduce the above legislation “when parliamentary time permits”.
Government support to industry to ensure regulations can accommodate tokenization and DLT in MFIs
- The government is developing an FMI Sandbox to support companies that want to innovate, including using tokenization and DLT to deliver FMI services. The sandbox will be operational in 2023.
- The government intends to work with regulators and industry to identify and manage any issues with the adoption of DLT.
Regulatory flexibility to integrate
- The government will ensure that enough flexibility is built into the UK regulatory framework to allow regulators to adapt rules and requirements as international work in this area comes to an end. It will also benefit from the agility that will be granted to UK financial services legislation by the future regulatory framework.
Additional Consultations on Other Planned Crypto-Asset Activities
- The government will work with UK financial regulators and industry to consider appropriate future regulation. It will also continue to work closely with international partners to ensure common standards that enable innovation and harmonize guidance and concepts.
- A further consultation on the regulation of a broader set of crypto-asset activities is expected later this year. This will include proposals relating to other forms of crypto-assets used primarily as retail investments and the growth of decentralized finance (DeFi), following feedback from the Call for Papers.
In addition to announcing the publication of the government’s response to the consultation on crypto-assets and stablecoins, in its Scheduled Speech During the Innovation Finance Global Summit 2022, MP John Glen also spoke about the fact that the new national fintech body, the Center for Finance, Innovation and Technology, has just met for the first time. The creation of the Center was one of the main recommendations of the Kalifa Review. the Terms of reference for the Centre’s Steering Committee have also been published.
Legislation to introduce the new regulatory regime for stablecoins used as means of payment will be introduced’when parliamentary time permits‘. As mentioned above, the government is planning further consultation on the regulation of a broader set of crypto-asset activities later in 2022. The new IMF Sandbox is expected to be operational in 2023.
“The direction of John Glen’s speech and the government’s intention for the UK to become ‘a global hub – the best place in the world to start and grow crypto companies’ is very welcome, as are the references to try to create dynamic, responsive and proportionate regulation for crypto-assets It is also helpful that stablecoins have their own regime, although this is of slight concern as it will fall under the existing e-money regime which has not worked well so far with crypto-assets. Hopefully, proposals for stablecoins and other crypto-assets are indeed regulated by a “vibrant, responsive and proportionate” regime that would firmly position the UK as one of the world leaders in this space”.