In November, Tulip Siddiq, Economic Secretary to the Treasury, outlined the UK government’s approach to regulating cryptoassets and the Financial Conduct Authority published its crypto roadmap. These announcements were made against a backdrop of increased consumer awareness and investment in cryptoassets (around 7 million UK adults own cryptocurrencies), as well as wider FCA engagement in the industry.
The speech and roadmap provide welcome clarity for the year ahead. The Government plans to work with businesses on draft legal provisions relating to the crypto-asset regime as soon as possible in 2025. The FCA has set out a phased approach, starting in the fourth quarter of 2024 and continuing until 2026, with discussion papers, consultation papers and final policy statements leading up to the launch of the scheme in 2026.
Siddiq confirmed that the previous government’s proposals for the regulation of cryptoassets (published in October 2023) will be fully implemented, including the creation of new regulated activities for cryptoassets, such as operating a crypto-asset trading platform, as well as associated schemes for both admissions. trading and market abuse. Siddiq also confirmed that the government would remove legal uncertainty around staking and that these services should not be treated as collective investment schemes.
The big change in stablecoin regulation
The new government’s most significant change in direction concerns stablecoins backed by fiat currencies. Under previous proposals, fiat-backed stablecoins were to be included within the scope of UK payments regulation, with two separate, but interdependent, regulatory regimes: one for issuance and custody of stablecoins under the jurisdiction of the FCA and another for systemic payment systems. using stablecoins, recognized by the UK Treasury, within the jurisdiction of the Bank of England for prudential regulation and the FCA for conduct regulation. Had they been designated by the Treasury, systemic payment systems could also have come under the jurisdiction of the Payment Systems Regulator.
There were concerns that this approach may have led to regulatory divergence and required significant changes to the business model of stablecoin issuers if they were initially regulated by the FCA, but has become systemic. In particular, all collateral assets would be held as central bank reserves and stablecoin issuers would not be allowed to generate income from these assets.
However, under the revised approach, the government has no plans to introduce stablecoins into UK payments regulation at this time. It considers that such an approach would impose additional regulatory burdens on certain stablecoin activities in a way that would not be proportionate given current use cases. The government intends to pursue new regulated activities for stablecoins, which will be implemented on the same timetable as the rest of the regulatory regime for cryptoassets (as shown in the FCA roadmap), rather than following the previous two-phase approach.
What does this mean for the UK stablecoin sector?
The new policy regime will provide opportunities for companies seeking to issue sterling-backed stablecoins.
However, it is clear that the industry will need to understand the implications of the various discussion and consultation documents on its business models, as well as formulate responses to help influence policies that maximize opportunities and minimize potential disruption or risks. Equally important will be ensuring businesses have the appropriate authorization plans and “no regrets” actions they could take next year, ensuring appropriate risk and control environments (particularly the anti-money laundering and consumer obligations), and to consider business strategy and move forward. -marketing opportunities.
Christopher Woolard is a partner at EY and chair of the EY Global Regulatory Network.
This is an edited version of an article published on LinkedIn.
