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Experts are divided on just how significant the UK’s new crypto plans are, after HM Treasury published its stablecoin consultation response earlier this month.
At the beginning of April, the UK government unveiled its most significant plans for crypto-assets yet.
This included bringing certain stablecoins into the UK’s payments regulation, as well as establishing a regulatory sandbox for financial services infrastructure and setting up an advisory group to spur crypto innovation.
The announcements were a seismic shift in the UK’s public policy reaction to the nascent crypto sector, said Olu Omoyele, founder of Midelatory Consulting. “Whereas the UK’s regulators have hitherto taken an anti-crypto stance in their public pronouncements, the government has changed all that.”
“The UK will now seek to become a welcoming, rather than hostile, jurisdiction for crypto entrepreneurs and investors,” he argued.
For Omoyele, it is not inconceivable that the frosty reception that the world’s largest crypto exchange, Binance, received in the UK may have influenced its decision to direct its focus to the Middle East and North African (MENA) region where it has recently been granted regulatory licences by Bahrain, Dubai and Abu Dhabi.
However, although the announcements have generated excitement among financial players and the press, some operating in the industry appear unconvinced by the Conservative government’s proposals.
“It is far less exciting than everyone is making it out to be,” said Jannah Patchay, policy lead and founding member of the Digital Pound Foundation. “What it doesn't do is represent an announcement of a comprehensive regulatory regime for crypto-assets more generally."
When media outlets began reporting that the Treasury was due to outline its plans for crypto legislation, some had expected that the scope would be wider than simply stablecoins.
Stablecoin legislation was in the works anyway, considering the standards that the UK had agreed with other economies at the G7 meeting last year.
"It doesn't represent anything as exciting as what was said at Innovate Finance Global Summit,” continued Patchay, referencing the keynote address on the issue from John Glen, economic secretary to the Treasury.
The Treasury has made clear that it is not introducing new regulations at this stage, but merely extending existing ones to encompass certain types of stablecoin, she pointed out. “Furthermore, beyond stablecoins, the government is not talking about bringing anything else into the regulatory fold at this point, although it has said that it will consult on extending the regulator perimeter to encompass different types of crypto-assets later this year."
"Stablecoins are the starting point,” agreed a London-based legal source, adding that there is a renewed focus on crypto-assets from the government.
There is also the Crypto Sprint being overseen by the UK’s Financial Conduct Authority (FCA), the source continued, commenting on the event that is due to take place in May.
“This makes it seem like the FCA wants to consult in quite an urgent way by drawing together a variety of players across the ecosystem."
"There probably is not a lot of excitement surrounding the stablecoins announcement,” they acknowledged. “However, the fact there will now be a formal legal framework is helpful for legal certainty but this is largely the advice that is being provided anyway, so is just confirming the current system.”
What is interesting is the activities called out in the response, which focuses on issuing and custody, the source speculated — contrasting the legislation with the EU’s digital finance proposal, the Markets in Crypto Assets (MiCA) regulation.
“A lot of exchanges will be in scope through the fact they are involved in the custody of stablecoins, but it is a different approach to MiCA from a theoretical perspective."
Traditionally, there has been a reluctance towards regulating crypto because it then has legitimacy, said the source, adding that the government’s announcements may jolt the FCA into action on the issue.
Sources suggest that the FCA may even be due a change in leadership in the coming months to spur this change in approach.
For example, in March, the regulator posted a job application on LinkedIn for a “head of department digital assets” to “lead a new crypto department that will lead and coordinate the FCA’s regulatory activity in this emerging market”.
"The FCA still has investor protection concerns, which are borne out of recent government announcements. There has been an aggressive attitude to firms under the money laundering regulations, with registration akin to an authorisation process,” said the source, referring to the FCA crypto service provider registration process.
This represents a crackdown mentality in this space, they suggested. “Internally, I think that the government is applying pressure on FCA to get their house in order.”
What came out of Glen's speech was more flexibility for regulators to come up with rules, so it is likely that the FCA will be able to set rules for crypto under secondary legislation, they pointed out.
While Omoyele greeted the government’s plans as “positively sizzling”, Patchay warned that the UK risks falling behind its peers when it comes to crypto-asset regulation.
"The government hasn't produced anything new in terms of concrete proposals for regulating crypto-assets, and there is no indication of what the future may actually look like,” she said.
“This puts the UK a long way behind the EU's MiCA legislation, which, for all its faults, is bringing in a concrete and comprehensive regulatory framework."
The UK has been behind the pack but is now trying to capture the crypto ecosystem, said the unnamed legal source, suggesting that additional legislation will mean that UK legislation will come into force at the same time as MiCA. “There is a lot of appetite to do business in the UK from crypto players, and the ecosystem is set up here.”
“It is a bit like the regimes that were put in place for payments and e-money,” they continued. “Having a regulatory framework will provide businesses with certainty in the UK."
