Following the collapse of Terra Luna and FTX last year, UK policymakers have committed to implementing a new regulatory framework for crypto assets and stablecoins, with the goal of ensuring their sustainable and secure adoption in the mainstream.
Over the past year, United Kingdom policymakers have collaborated closely with various financial institutions and stakeholders to develop comprehensive regulatory guidelines for crypto assets and stablecoins. CryptoUK, the trade body representing the digital asset sector in the UK, noted that the recent publication by the HM Treasury (HMT) regarding the Future Financial Services Regulatory Regime for Crypto Assets, in response to the initial consultation on Managing the Failure of Systemic Digital Settlement Assets, offers a clear overview of fiat-backed stablecoins.
Additionally, there has been a significant demand in the country for fiat-backed stablecoins as a means to reduce the high transaction costs associated with traditional payment methods. The UK has proposed measures for crypto assets and stablecoins in response to the failures of FTX and Alameda Research, which had adverse effects on both retail and institutional investors.
Bank of England (BoE) and Financial Conduct Authority (FCA) on Stablecoins
In the broader context of the digital Pound initiative, the Bank of England (BoE), in close collaboration with the Financial Conduct Authority (FCA), has released a regulatory framework for the stablecoin market and invited public feedback. Notably, the BoE and the FCA have extended the deadline until February 6, 2024, for members of the public and participants in the crypto industry to share their perspectives on the proposed stablecoin regulations.
Sheldon Mills, an executive director responsible for consumers and competition at the FCA, emphasized the role of stablecoins in enabling faster and more cost-effective payments. Mills also highlighted the significant demand from institutional investors who are eager to offer stablecoins within a regulated framework, underscoring the importance of their input.
“We eagerly anticipate ongoing collaboration with the Government, our partners, and the broader crypto industry as we progress through the initial stages of developing the UK’s cryptocurrency regulatory framework and beyond,” Mills stated.
Similar sentiments were expressed by Sarah Breeden, the deputy governor for financial stability at the Bank of England, who added that the regulatory proposals for stablecoins are designed to promote safe innovation and instill public confidence in this evolving financial landscape.
Market outlook
With over 31 million crypto users in Europe, the United Kingdom is keen to leverage the nascent blockchain technology to build on its economy. Moreover, rising inflation has caused the Central Bank to raise its interest rate amid the ongoing Russian invasion of Ukraine which has undeniably impacted the UK economic growth outlook.
Meanwhile, the ongoing crypto regulatory phase in the United Kingdom will provide a clear picture for traditional banks and web3 projects to work together. Moreover, some financial institutions led by Chase Bank UK have already banned crypto-related transactions since the mid-last months.
