The United Kingdom government is set to release new restriction frameworks for cryptocurrency and related businesses. The rest of the industry hopes that this will provide more clarity to fill in the current gaps and loopholes.
Early this April 2022, Her Majesty’s (HM) Treasury of the United Kingdom publicized that the government’s economic and finance ministry is on its planning phase for a new framework for stablecoin regulations.
They announced that with this soon-to-be-released restriction package, stablecoins will be regulated under the U.K.’s current payment framework as the beginning of the composite initiative from the government to build a crypto hub with a vigorous compliance process.
What does this mean for stablecoin business providers?
Generally, following the payment regulatory framework created in 2017 would entail that stablecoin providers should be required to register their ventures with the U.K.’s financial regulator called FCA or Financial Conduct Authority. This would mean further compliance with necessary conditions and following restrictions specific to payment transactions and services.
For the Innovate UK Award Winner Kene Ezeji-Okoye, the current President of Millicent (a stablecoin research company from the U.K.), this announcement from the financial ministry could potentially provide the long-waited clarity on how crypto-business such as Millicent could maintain compliance with the government.
The current business model of Millicent is covered under the current regulatory system of the FCA for digital currencies. However, given that the company plans to expand in owning accountability over public’s cryptographic functions, Millicent could then be considered as a crypto-asset company with supposedly different laws and regulations to comply with.
Kene Ezeji-Okoye, together with other companies and the rest of the crypto community, is hopeful that the incoming rules and regulations for stablecoins will soon fill in the gaps for business owner compliance.
A MOVE EMBRACED BY THE INDUSTRY
The United Kingdom government has previously made it clear its goal for the crypto industry – to create a global hub for crypto-related technologies and businesses. Together with this ambition, they have announced a series of projects, including legislations that will acknowledge and legitimize stablecoins as payments for transactions and services, among others.
This ambition received a warm welcome not just from the public, but also from many business providers, even regulators.
For Gemini, a U.K.-based cryptocurrency exchange company and a stablecoin provider, optimistically applauded the U.K. authorities for having the initiative in manufacturing regulatory packages for stablecoins. They pointed out that the upward trend of stablecoin usage in the industry clearly summons the government to do so.
A representative from Tether concurred with this statement from the fellow stablecoin company, adding that the United Kingdom could be one of the pioneering nations to build proper regulatory guidance on this kind of crypto asset.
Correspondingly, regulators have the same positive feedback on this move by the U.K. financial authorities.
Simon Cohen of Ontier LLP, a global crypto law firm, asserted how they greatly appreciate the U.K government for acknowledging the significance of robust restrictions for cryptocurrencies and other related digital assets.
Back in year the 2019, Financial Conduct Authority stated that crypto providers involved in international transactions should comply with payment-related laws, but the digital assets itself would not be covered over by the regulations. This is expected to change with the recent announced legislation by the HM Treasury.
The FCA recently clarified that they greatly welcome any plans by the government in manufacturing new laws and regulations for cryptocurrencies, asserting that they would continue to support the authorities.
STATE OF STABLECOINS IN THE U.K.
Last 2021, Her Majesty’s (HM) Treasury of the United Kingdom has performed various research and consultations on stablecoins, for which results were released together with the recent announcement for future regulatory framework.
The studies made reported that even though not all crypto issuers can comply with all the standard restrictions, there was a general alignment that those stablecoins founded by a single fiat currency should be compliant with the conditions specific for digital payments and related transactions.
The HM Treasury aims to ensure that all crypto issuers will be registered with the FCA, complying with its rules and safety measures. This means that the soon-to-be-released framework would not only alter the current payments regulatory packages, but also the rules for electronic money (or e-money) to expand the scope including stablecoins.
However, the report has not yet detailed out every requirement for stablecoins but mentions that the development will be advanced with the aid of the U.K.’s Bank of England and Payment Systems Regulator.
Based on the Treasury’s consultation report, there is currently a general understanding among providers that stablecoins and related activities should follow the compliance measures set by the Bank of England. For instance, once a company is identified as compliant with the requirements under the Banking Act, the company would then be classified as systemic, which should be controlled under the FCA and the Bank of England.
The report mentioned that all stablecoins backed by fiat currency, either single or multiple, would be under the scope of the forthcoming regulatory framework.
Meanwhile, algorithmic stablecoins, or those founded by assets aside from fiat, should not be covered. These algorithmic coins are decentralized digital assets created to maintain its value using codes and programming, controlling its supply based on its price. In essence, these are expected to be self-sufficient without any collateral.
In relation to this, many experts pointed out that it would really be a great challenge for policymakers to apply or pattern rules from the current regulations to these algorithmic coins, given its complexity and distinctive nature.
STATE OF CRYPTO IN THE U.K
Even with the current pacing that the U.K. government is taking in terms of regulating cryptocurrencies, there is still too much work to be done.
Just early this year, several studies have shown that the United Kingdom was relatively slow in stepping into cryptocurrencies, in comparison with the other nations, especially from both Asia and Middle East.
A spokesperson from YouGov, a global public opinion and research data company, pointed out in a study that even though huge growth is anticipated for crypto space in the U.K. market, further potential is being held back by safety and compliance issues.
In the same study, they clarified that even with the recent news from the U.K government for its plans related to the crypto industry, it is still a question mark whether these would be enough to provide assurance and gain public trust.
THE MISSING PIECE
Even with the recent public announcement by the U.K government on its plans, there is still lack of coherence and clear view on what really to expect, leaving the rest of the industry yearning for more clarity
In the previously released consultation report, the HM Treasury clarified that the plans they currently have in progress will be developed with utmost assurance of flexibility over the regulatory frameworks given that definite descriptions could be rapidly left behind by the fast-changing industry.
Kene Ezeji-Okoye and many other company owners very much anticipate what would the U.K. government provide in the near future, and which questions will be answered favorably.
How would stablecoins be defined? Which coins will be legitimized as a payment method? Which coins would be covered in which set of regulations?
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