On April 4, 2022, the UK government announced various initiatives designed to make the country a global hub for cryptoasset technology. These proposals were set out in a speech by John Glen, Economic Secretary to the Treasury.
The proposals include: bringing stablecoins into the ambit of UK regulation with a view to their being used as a recognised form of payment; legislating for a “financial market infrastructure sandbox” to help firms innovate; working with the Royal Mint on proposals for issuing a non-fungible token (“NFT”); and an engagement group to work more closely with industry.
The UK Regulation of Cryptoassets
Although still largely unregulated, there have been moves to bring cryptoassets within the scope of UK regulation over the last few years. Since 2020, cryptoasset firms operating in the UK have been subject to the UK Money Laundering Regulations, and earlier this year, it was announced that the UK’s rules and regulations on financial promotion would be extended to cover cryptoassets.
The announcements on April 4, 2022, however, aim to go beyond protecting consumers though anti-money laundering and financial promotions regulation. They envisage the UK developing into a worldwide fintech and cryptoassets hub.
The Future Regulation of Stablecoins
Also on April 4, 2022, the UK Treasury published its response to its consultation on the regulatory approach to cryptoassets, stablecoins and distributed ledger technology. The government intends to bring activities facilitating the use of certain stablecoins (a form of cryptoasset that is typically pegged to a fiat currency, such as the dollar, which is intended to maintain a stable value) into the UK regulatory perimeter, when used as a means of payment. This will be done primarily by amending existing electronic money and payments legislation. The rationale for doing this is that potentially certain stablecoins have the capacity to become a widespread means of payment.
Distributed Ledger Technology
John Glen also announced that the UK will examine in more detail the potential benefits of distributed ledger technology in UK financial markets, with a view to achieving greater market efficiency, transparency and resilience. Legislation will lead to the establishment of a financial market infrastructure “sandbox” that will enable firms to experiment in the use of distributed ledger technology in providing the infrastructure services that underpin markets.
Other Cryptoasset Initiatives
Other initiatives outlined by John Glen include the commissioning by the UK government of the Royal Mint to issue an NFT this summer, with further details on this to follow soon.
The government will also be making changes to the tax system in order to encourage the development of the cryptoasset market in the UK. It will review how DeFi (decentralied finance) loans —where holders of cryptoassets lend them out for a return —are treated for tax purposes and will look to extend the scope of the Investment Manager Exemption to remove disincentives on UK fund managers including cryptoassets in their portfolios.
John Glen further explained that a high-level industry group, a Cryptoasset Engagement Group, would be established, comprising of key figures from the Financial Conduct Authority, the Bank of England and business, to advise the government on issues facing the cryptoasset sector.
While the government wants to subject cryptoassets to an appropriate level of regulation, this series of announcements illustrates that it wishes to make the UK a “hospitable place” for crypto businesses with a view to building on the UK’s expertise in fintech. This is clearly seen as a growth area in the UK financial services sector.