Shalini Nagarajan

The UK Treasury unveiled definitive proposals for regulating cryptoassets and stablecoins on Monday.



The government intends to implement regulations in stages, beginning with the oversight of fiat-backed stablecoins for payment.&nbsp;



The subsequent phase will address the wider cryptoasset sector, as outlined in two policy documents.&nbsp;



These suggestions come after a consultation <a href="https://blockworks.co/news/uk-crypto-regulation-in-the-works">released</a> in February about the upcoming financial services regulatory structure for cryptoassets in the UK.



Numerous companies and stakeholders actively participated in the consultation, <a href="https://blockworks.co/news/opinions-uk-crypto-policy">offering insights</a> to refine the government’s proposed approach.



“While most aspects of our proposals were well-received by the large majority of respondents, we have modified certain features of our future framework to take onboard the evidence presented,” Andrew Griffith, economic secretary to the Treasury, said in a statement.&nbsp;



The Treasury aims to <a href="https://assets.publishing.service.gov.uk/media/653a82b7e6c968000daa9bdd/Update_on_Plans_for_Regulation_of_Fiat-backed_Stablecoins_13.10.23_FINAL.pdf">regulate fiat-backed stablecoins</a> in two key areas: their use in payment systems and their issuance and storage within the UK, regardless of specific applications.



The suggested regulations will place specific fiat-backed stablecoins under the oversight of the Bank of England, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR).&nbsp;



Together, they will work to reduce potential harm to consumers and address the conduct, financial stability and other risks associated with these stablecoins, especially when used for transactions.



The Treasury also <a href="https://assets.publishing.service.gov.uk/media/653bd1a180884d0013f71cca/Future_financial_services_regulatory_regime_for_cryptoassets_RESPONSE.pdf">detailed plans to regulate broader crypto-related actions</a>, such as trading, custody and lending. This consultation suggested frameworks for market misconduct, as well as issuing and disclosing cryptoassets.



The government reiterated that it does not support regulating unbacked cryptoassets as gambling. This stance would ensure consistency with international standards and practices of key regions, including the EU, it said.



The Treasury plans to introduce secondary legislation promptly, aiming for early 2024, depending on the parliamentary schedule. This legislation will encompass activities from both phases.



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regulation

UK Treasury reveals final blueprint for crypto, stablecoin governance

Katherine Ross

The UK Treasury penned a consultation paper on stablecoins, outlining how it’s considering approaching stablecoin regulation.



The government is considering tapping the <a href="https://blockworks.co/tag/bank-of-england">Bank of England</a> to oversee stablecoins alongside the Financial Conduct Authority (FCA). The consultation paper comes after the government sought feedback from respondents — including <a href="https://blockworks.co/tag/paypal">PayPal</a>, HSBC UK, Circle and Barclays.  



The <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1176540/Payments_Regulation_and_the_Systemic_Perimeter_-_Consultation_Response.pdf">Treasury</a> found that the Banking Act of 2009 gives the BOE enough of a regulatory perimeter to oversee stablecoins, though it noted that it will “further clarify the Bank’s existing regulatory toolkit.”



“A clear majority agreed with the government’s principles to reforming this perimeter to ensure that the Bank’s capacity to mitigate acute financial stability risks kept pace with the evolution of the payments sector at large,” the <a href="http://blockworks.co/tag/uk">UK</a> government said.



The paper lays out the groundwork for what could be expected of the BOE if it’s put in charge of stablecoins. The Bank would take point on “prudential matters,” while the FCA would head up conduct.&nbsp;



However, “the Bank would be given the power to prevent the FCA from taking action in relation to an entity recognised as systemic” and the Prudential Regulation Authority could step in if any FCA actions caused concern around financial stability.



According to the paper, the <a href="https://blockworks.co/tag/united-kingdom">government</a> will push the BOE to supply details on how it will regulate newer technologies, though it also notes that the power shouldn’t then be applied to entities that are already supervised by the bank.&nbsp;



“The government also recognises that limits might be set to mitigate broader financial stability risks, such as the financial and monetary stability risks posed by new forms of digital money such as stablecoins,” the paper said.



The Bank of England has been conducting stablecoin and <a href="https://blockworks.co/news/boe-concludes-project-meridian">distributed ledger technology</a> research, with the BOE finding that <a href="https://blockworks.co/news/stablecoins-efficient-bank-of-england">stablecoins offer “efficiency”</a> in payments earlier this year.



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Bank of England

UK mulls granting Bank of England more power in stablecoin regulation

Critics have often labeled investing in crypto something akin to gambling. But if UK lawmakers get their way, the industry could soon be regulated in much the same way as casinos.



A new report from a group of UK parliamentary representatives outlines perceived risks associated with unbacked crypto assets, emphasizing a supposed lack of intrinsic value and extreme price volatility.



The findings suggest these traits expose consumers to significant gains or losses, resembling gambling more than a financial service.



&#8220;We are concerned that regulating retail trading and investment activity in unbacked crypto assets as a financial service will create a &#8216;halo&#8217; effect that leads consumers to believe that this activity is safer than it is, or protected when it is not,&#8221; the Parliament’s Treasury Committee said in a House of Commons <a href="https://committees.parliament.uk/publications/39945/documents/194832/default/" target="_blank" rel="noreferrer noopener">committee report</a> published May 17.



The report cites bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>) as examples of “unbacked crypto assets,” apparently delineated from asset-backed tokens such as stablecoins USDC, tether or even Pax Gold.



CryptoUK, a crypto trade association, <a href="https://cryptouk.io/resources/cryptouk-strongly-rejects-treasury-committees-crypto-gambling-claim-cryptouk-response-to-the-tsc-statement/" target="_blank" rel="noreferrer noopener">said it strongly disagreed</a> with the recommendation, arguing that this approach would overlook the sector’s intricacies and its potential for attracting investment and fostering economic growth for the UK economy.



“No other global jurisdiction has taken this approach and referencing MiCA in the EU, we need to be taking a bespoke and tailored approach for regulation within the industry to ensure the UK does not become a hostile environment for businesses to be domiciled,” the organization said in a statement.&nbsp;



“Likewise, this approach will not provide the right level of protection for UK consumers — they will likely take opportunities to invest and transact with non-UK organizations which is wholly against the objective of protecting these consumers through regulation.”



Ian Taylor, board advisor at CryptoUK, highlighted the contradiction between the Treasury’s statement and HM Treasury’s consultation proposals. The proposals aim to bring activities, such as operating trading venues and serving as intermediaries, within the scope of existing financial regulations.



“Professional investment managers see bitcoin and other crypto assets as a new alternative investment class — not as a form of gambling — and institutional adoption of unbacked crypto assets has increased significantly,” Taylor said.



“Furthermore, gambling is exempt from capital gains tax. Does the Government really wish to exclude tens of millions of pounds in tax income from gains made by the buying and selling of unbacked crypto assets?&#8221;



Blockworks has reached out to the UK’s finance ministry for comment.



<h2 class="wp-block-heading">Gambling or not, UK Treasury digs cross-border crypto</h2>



In February, the UK government <a href="https://blockworks.co/news/uk-crypto-regulation-in-the-works" target="_blank" rel="noreferrer noopener">published a consultation paper</a> to establish a regulatory framework for crypto assets, aiming to stabilize the industry.



This followed its <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1088774/O-S_Stablecoins_consultation_response.pdf" target="_blank" rel="noreferrer noopener">announcement</a> last year to introduce regulations for stablecoins and crypto assets used in payments through the Financial Services and Markets Bill.



The Treasury’s statement on likening crypto markets to gambling is not a new perspective. Todd H. Baker, a lecturer in law at Columbia Law School, wrote a <a href="https://clsbluesky.law.columbia.edu/2022/11/29/lets-stop-treating-crypto-as-if-it-were-finance/?amp=1" target="_blank" rel="noreferrer noopener">blog</a> last year comparing crypto trading to professional esports gambling, and encouraged policymakers to regulate it as such.



Not to mention, billionaire investor Warren Buffett has famously <a href="https://www.cnbc.com/video/2023/04/12/warren-buffett-on-bitcoin-and-crypto-weve-had-an-explosion-of-gambling.html" target="_blank" rel="noreferrer noopener">referred to bitcoin</a> as a &#8220;gambling token.&#8221;



The Treasury committee did acknowledge potential benefits associated with certain types of crypto assets. Among the most compelling use cases it mentioned were crypto&#8217;s ability to boost payment efficiency and reduce costs, particularly for cross-border transactions and in economically disadvantaged regions.



“We therefore welcome the government publishing proposals for how it plans to regulate crypto assets used in financial services,” the Treasury said.



However, the committee said the government should refrain from allocating public resources to support crypto asset activities that lack a clear and beneficial purpose. They pointed to the Royal Mint’s plan to launch an NFT, which was <a href="https://blockworks.co/news/uk-treasury-nft-halted" target="_blank" rel="noreferrer noopener">scrapped this year</a>.



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cryptocurrency

Regulate Crypto Just Like Gambling, UK Treasury Committee Says

Casey Wagner

<div id="highlights-block_624b32c0355de" class="highlights">
 <ul>
 <li>The UK doubled down on its crypto plans Monday with the announcement that an NFT may be minted by this summer</li>
 <li>The country’s finance ministry said it is prioritizing stablecoin regulation in a Monday report</li>
 </ul>
 
</div>



In another effort to become a leader in digital asset technology, the United Kingdom’s Treasury has asked the Royal Mint, the agency responsible for creating British currency, to mint an NFT.



Chancellor Rishi Sunak has asked the government-owned coin issuer to create an NFT (non-fungible token) by this summer, according to a <a href="https://twitter.com/hmtreasury/status/1510971092072079360?s=20&amp;t=e3eIXViAapGmOnL8d6oMxA" target="_blank" rel="noreferrer noopener">tweet</a> from the Treasury account Monday.



​​Economic Secretary to the Treasury John Glen addressed the news during his <a href="https://www.gov.uk/government/speeches/keynote-speech-by-john-glen-economic-secretary-to-the-treasury-at-the-innovate-finance-global-summit" target="_blank" rel="noreferrer noopener">keynote speech</a> at the Innovate Finance Global Summit on Monday.



“I am announcing today that the Chancellor has asked the Royal Mint to create a non-fungible token, an NFT&#8230;to be issued by the summer, an emblem of the forward-looking approach we are determined to take&#8230;and there will be more details available very soon,” Glen said.



The move comes as the UK’s finance ministry <a href="https://cms.blockworks.co/uk-aims-to-let-consumers-use-stablecoin-services-with-confidence/" target="_blank" rel="noreferrer noopener">announced its plans</a> to prioritize stablecoin regulation in a report released Monday. The ministry said it will be releasing further regulatory guidelines this year in an effort to protect consumers.



“We want this country to be a global hub — the very best place in the world to start and scale crypto companies,” Glen said. “If there is one message I want you to leave here today with, it is that the UK is open for business, open for crypto businesses.”



Sunak, who was unable to attend the summit, has not yet provided any additional information about the NFT.



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