Syed Rahman outlines the prospect of rules being introduced in 2025.
The UK government has said it will consult with the private sector early next year on a proposed regulatory framework for stablecoins.
Economic Secretary Tulip Siddiq told The Tokenisation Summit 2024 in London that the government intends to share drafts of planned updates to the UK’s regulatory framework in 2025. But she did not give a detailed timescale for the updates being made available for scrutiny.
Her remarks are the first clear signs that the Labour government is looking to bring change to the crypto sector. The previous Conservative government’s aim of making the UK a hub for crypto and blockchain innovation never came to full fruition. This was due partly to the Financial Conduct Authority’s (FCA’s) tough approach to cryptoasset firms’ registration – an approach which saw only a small number of firms approved.
The FCA has said its strict approach was necessary for the protection of consumers and would-be investors. But the regulator’s critics have argued its hard line was hampering sought-after innovation and crypto sector growth.
Concerns
The comments from the Economic Secretary may ease concerns that the government has done little since coming to power that will ensure the UK is a welcoming environment for crypto. This apprehension has been heightened by other countries already looking to introduce crypto regulatory frameworks, with fears that the UK may miss out in the race to attract innovators. The European Union’s Markets in Cryptoassets (MiCA) regulatory framework will be fully active by the end of this year, and many are forecasting the recent Republican US election victory will see the country usher in a more pro-crypto era.
Commentators have speculated that the Labour government may go ahead with the previous government’s plans to regulate stablecoins, at least to some degree, and aim to resolve issues around staking and market abuse. The regulatory framework needs to be in place promptly so investors can utilise the market without the fear that any impending change may affect their original agreement. This is also important in order to reduce the risk of investors being tempted to redirect to another country such as, for example, the US where the incoming Republican government may beat the UK when it comes to establishing clearly set-out regulations.
Transparency
Some aspects that could be key when it comes to regulation are transparency, location and access matching. While we have seen an advance in the law from the introduction of persons unknown when issuing freezing injunctions over crypto assets, there remains a lack of transparency and coordination from exchange platforms as to where exactly the crypto assets are held, and not just regarding who they are owned by. Tackling the issue of transparency will, hopefully, address this concern.
Part of incoming president Donald Trump’s plans for the US is to create a crypto platform to be built on Aave and the Ethereum blockchain to feature a credit account system as a government token called WLFI to allow holders to “suggest and vote on adding new DeFi lending markets or integrating new blockchain”. While this has not yet been actioned, it is good inspiration for the UK government when it comes to creating a system where the government can regulate crypto assets but where investors remain the priority and have a say in the market. The initial point of Bitcoin was, after all, to put control back in the hands of individuals hands and away from the banks. Such an approach would make the UK more attractive to new and existing investors who may fear that over-regulation will only work against them.
As new coins and types of crypto assets and exchange platforms are being created every day, the law has not been able to keep up with the market. However, now we have the benefit of understanding crypto assets further, the FCA will feel more confident in issuing regulations that they know aren’t going to have to change again in a years’ time, as this presents an unattractive and unstable market. And it is better to have held off and then created rules that have longevity rather than have pumped out regulations that are quickly overtaken or made redundant.
