Author: Syedur Rahman
22 July 2022
4 min read
Syed Rahman of Rahman Ravelli details the main issues to arise from HM Treasury’s consultation on cryptoassets and stablecoins.
HM Treasury launched a Consultation and Call for Evidence in 2021 on the regulatory approach to cryptoassets and stablecoins. The consultation was an understandable response to the need to ensure the creation of a regulatory framework that would ensure the benefits and innovation associated with such assets while also protecting consumers and the integrity of the market.
So far, the UK government is aiming for an approach to regulation that will be proportionate to the risks that have been identified and capable of responding to any future developments.
This emphasis on any regulatory framework needing to be flexible enough to allow for rules to be adapted to reflect market changes is logical. The consultation draws attention to stablecoins. This is not surprising given that they are the more recently-developed cryptoassets, may well become a common payment feature, could be used extensively in cross-border transactions and look to be playing a notable part in the growth of decentralised finance (DeFi). The government’s aim of removing risks, shortcomings in regulation and market abuse regarding stablecoins makes sense.
In April this year, the Treasury published its Response to the Consultation and Call for Evidence on the regulatory approach to cryptoassets and stablecoins. The response is, in effect, the UK approach to stablecoin regulation.
The increasing prominence of stablecoins has prompted the government to consider what it can do to remove (or at least reduce) the risks associated with them. The response makes it clear that the government wants to see stablecoins used as a means of payment within the UK regulatory perimeter. It intends to achieve this by amending the Electronic Money Regulations 2011 and the Payment Services Regulations 2017, as the UK currently has no regime for the regulation of stablecoins.
There appears to be an intention to put in place an amended e-money framework that will cover the official issuing of stablecoins and the relevant wallets and custody services, ensure convertibility into fiat currency and facilitate simultaneous payments. This will be backed by Financial Conduct Authority (FCA) rules and guidance.
The main points of the Treasury Response are:
The FCA authorisation will apply to:
It will not apply to:
Without even considering the individual aspects of the Treasury’s response, the fact that there has been a formal consultation exercise is clear proof that stablecoin requires some form of regulation that is appropriate to its role in the financial system.
While it could be argued that, at this stage, nothing definite has been agreed, it certainly appears that measures will be introduced in the near future. There are now higher than ever levels of scrutiny on stablecoin. Regardless of what the precise outcome of this proves to be, there is little doubt that those who do operate in this area will need to reassess their existing arrangements and ensure they do all they have to do to comply with any regulatory changes that are eventually introduced.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.