British regulators plan to increase enforcement of crypto and make stablecoins an acceptable payment method.
The United Kingdom’s Economic and Finance Ministry (also known as Her Majesty’s Treasury) announced in April that it would bring stablecoins to the country’s payments regulation. This bold move is especially striking in contrast with the shock caused by TerraUSD’s(UST) depegging.
Later in May, Prince Charles told Parliament of two bills to support “safe adoption” and “create power to more quickly and easily take and recover crypto assets.”
These initiatives, taken together, give an impression that the country is increasingly interested in digital assets. This is no surprise given the competition for innovation with Europe.
The last few months have been busy for cryptocurrency in Great Britain. We witnessed major announcements from regulators, in addition to some significant precedents being established such as the High Court’s decision by the High Court to recognize nonfungible tokens as property or Grayscale’s first European ETF listing on the London Stock Exchange.
Stablecoins and the Treasury: The Treasury’s scandal
The Treasury announced April 4 that, after a lengthy public consultation, certain stablecoins could be “a widespread method of payment” for retail customers. It stated that it is ready to “take all necessary legislative steps” in order to make stablecoins a compprehensible regulatory framework.
Tony Dhanjal from Koinly explained to Cointelegraph that this announcement should be regarded as a huge news item or a game-changer since it will result in stablecoins being reclassified in the U.K.
“Once stablecoins no longer have capital gains tax, we could see spending crypto as a method of payment in mainstream industries.”
The Treasury’s intentions were not limited to stablecoins. The financial regulator teased the launch a Cryptoasset Engagement Group. This group will consult with industry stakeholders. It will also reevaluate the country’s tax system regarding crypto, establish a “financial markets infrastructure sandbox”, and even have its own NFT.
Even the notorious market crash in May on the second week, which was particularly devastating for stablecoins original promise of zero volatility, didn’t deter the Treasury. According to Independent, the Financial Services and Markets Bill will include legislation that would allow stablecoins to be used as a payment method.
It is now known that the Treasury does not plan to include algorithmic stabilizecoins such as UST in this legislation. Only fully-backed stablecoins such Tether ( USDT ) and USD Coin ( USDC ) are being considered.
Take control and recover
The Financial Services and Markets Bill mentioned above, which could include the guidelines for stablecoins was included in the Queen’s Speech, a package of 38 legislative initiatives that was announced to Parliament on May 10.
It doesn’t tell much in its current form. However, the language seems to be very benevolent for this industry. The bill seeks to “harness the opportunities of innovative technology in financial services,” which includes:
“Supporting the safe and secure adoption of cryptocurrencies as well as resilient outsourcing to technology providers.”
The bill’s announcement focuses on the intent to create a national framework that is not identical to the EU’s. It would initially apply to traditional finance, but similar requirements are expected for crypto assets.
The Eastern end, Government Offices Great George St. where Her Majesty’s Treasury is located. Source: Carlos Delgado
The Economic Crime and Corporate Transparency Bill is another important part of Queen’s Speech. It doesn’t seem like it would be that friendly to digital currencies. Instead, the bill refers to them in a list containing the areas where British enforcers will tighten their grip. The bill would give powers to:
“Easier and quicker to seize and retrieve crypto assets, which is the main medium for ransomware.”
Although the “principle medium to ransomware” may not be exactly benevolent, it is possible for a body to not only seize but also recover crypto funds. This would boost the market.
“A major step for the UK”
Djahal stated that the general perception of crypto in the U.K. is positive. He believes that there is still a common belief that crypto is a paradise for criminals. Therefore, regulation is welcomed.
“It is not that the existing powers cannot seize ransomware money. But Anti-Money Laundering legislation, which was enacted in 2002 before crypto was invented, may not be fit for purpose in cryptoverse.”
Benjamin Whitby, Qredo’s head of regulatory affairs, tends towards agreement on this matter. Cointelegraph was informed by him:
“I believe the recognition of this space is enormously positive. Recognizing the asset class will open the door for more fintech companies to start using crypto assets in their technology stack.”
Although the goal to create effective enforcement may still be viewed as somewhat uncertain at this stage, experts are thrilled about the announcement of stablecoin recognition. Whitby described it as “a major step for the U.K.” but warned that we shouldn’t be fooled into thinking that everything will be easy.
“It is vital that people have a place they can move to for safety. With regulated stablecoins, we can move into T0 settlement worlds and reduce the burden on fragile and creaking traditional infrastructures.
Dhanjal thinks that the British financial authorities may even seek their own stablecoin. This would look very much like a central banking digital currency — a government-backed “Britcoin” that is pegged to the Great British Pound. He states that the intention is to preserve financial stability and reduce volatility in crypto.
“A Britcoin, with the right regulation, could offer a more efficient way to pay and increase consumer choice, especially in the new decentralized financial system.”
Make Britain great again
It’s difficult not to draw comparisons between the U.K. and its continental neighbor, given their separate nature and need to compete for talent and innovation. This is the inspiration for the Queen’s Speech, which states its mission to “make most of our Brexit freedoms” and “seize all the benefits of Brexit”. In total, 20 times has the word “Brexit” been used. Whitby believes that the U.K. can and will innovate faster than other jurisdictions and that the UK’s departure from EU regulation allows it to move faster.
Crypto assets allow for faster settlements, reduce credit risk, and lower settlement times to almost zero. It’s a big win for commerce, and the U.K. has made clear its intention to lead the charge. The U.K. is a long-standing nation that has explored boundaries and crossed oceans in small ships. It also insures risk and forms new ventures.
Dhanjal believes that the U.K. is more likely to outperform its continental counterparts because it has a rich heritage in financial services and a wide talent pool. It also has experience from startups and the financial sector all around the world. Dhanjal believes that the U.K. does not want to follow the EU’s general principles, which is good news for the country.
He stated that “now that the EU shackles have been removed by Brexit, the U.K. has the potential to accelerate its progress in becoming a global leader in crypto adoption and innovation.”
Cointelegraph spoke with Gilbert Hill, chief strategy officer of Pool’s blockchain-based data aggregation platform Pool. He said that the U.K. authorities are sincere in their efforts to create a safe haven for scaling and starting crypto companies. However, he believes not all of them will be efficient.
He said that the current regulatory sandbox is too rigid and has rejected nearly two-thirds all applicants. This has already led to some of Europe’s most promising projects being pushed out of Europe. Hill also highlighted the positive sides of the European approach.
“In a nutshell the EU has put data reform at its heart with the goal of busting silos valued 300 billion euros a year. A set of new laws covers everything from AI to internet gatekeepers to data unions. All this is to provide a new source for high-quality information to build better Web3 products.
Hill said that the U.K. must have the same level of political will as the rest of the world to be a leader and break away from the FCA/sandbox model. The nation will be able to make the right choices if it has the right spirit and is motivated to seperate from the continent.