Fintechs and crypto asset providers have welcomed the UK government’s decision to bring stablecoins into regulatory scope as part of the recently published Financial Services and Markets Bill.
It marks the first time that the UK’s licensing regime will cater specifically for a cryptoasset. While certain crypto businesses have to comply with the UK’s anti-money laundering rules, any issuer of stablecoins used for payment must now seek a licence from the Financial Conduct Authority (FCA).
“This is a positive move that recognises the significant role that these assets will play in our economy and financial system in the future,” said Blair Halliday, head of UK at crypto exchange Gemini.
“Regulation has been fundamentally important to Gemini since our inception and this Bill paves the way for ensuring greater consumer protection, while fostering innovation and more widespread digital asset adoption,” she said.
Gemini has just been granted a virtual assets service provider registration by the Irish Central Bank, the first time that Ireland has granted the relatively new licence to any crypto firm.
“Bringing stablecoins into the scope of regulation is a significant milestone,” said Harry Eddis, global co-head of fintech at law firm Linklaters who also welcomed the proposed launch of a new sandbox to be run by the Bank of England and FCA.
It is also likely that further legislation will be introduced, according to Eddis. “The limited scope of the new stablecoin regime minimises the initial impact but a consultation later this year will explore a more dramatic extension of the regulatory net into the crypto world,” he added.
The bill is one of the first major financial regulatory steps to be taken since the UK left the European Union. It also coincides with the publication of the UK’s AI Rulebook which details its strategy for imposing ethical guidelines on the use of artificial intelligence.
And while the UK’s proposals recognise the same ethical concerns around AI as identified in EU rules, they adopt a more principles-based and decentralised approach which may give some indication as to how the UK and EU regulatory approaches may differ in the future.
This divergence will be especially important as regulators try to grapple with significant supervisory developments such as rules over sustainable assets and greenwashing as well as the rise of crypto and digital assets and services.
This has led to calls from the industry for any regulation to properly balance the need for investor protection with the ability to innovate.
“The industry’s regulatory authorities are right to remain vigilant about forms of systemic and conduct risk, but at the same time the City must ensure that it does not drop the ball on supporting new growth and championing innovation,” said Andrew Pilgrim, UK financial services partner at EY.
“Overall, the UK needs to ensure it does not fall behind other global financial centres, particularly New York, Paris, and Amsterdam, which are already pushing ahead with reform agendas. Firms must take advantage of the reforms as the UK seeks to remain a competitive and high standard jurisdiction,” said Pilgrim.