The document reveals the government’s proposal to expand the regulatory perimeter to cover “stable tokens used as a means of payment”. The legislation would take the form of high-level principles, leaving it for financial regulators to specify detailed requirements through rules or codes of practice.
More broadly, the UK intends to take a “staged and proportionate approach” to cryptoasset regulation. As it deems the risks and opportunities in relation to stablecoins to be most urgent, the government has prioritised this area. It is not proposing to regulate further any other types of cryptoasset for now, except in relation to financial promotions (in relation to which it has already consulted and will report in due course). It is however seeking evidence in relation to cryptoassets used for investment purposes and the use of DLT in financial services and financial market infrastructures in particular, in order to inform its future proposals.
This approach stands in stark contrast to the European Commission’s legislative proposals which already include a comprehensive framework to regulate the entire crypto industry (MiCA) as well as a pilot regime for the creation and testing of digital security infrastructure. Underlying the UK approach is a desire to avoid applying “disproportionate or overly burdensome regulation to entities”, particularly where the financial stability risks are low.
The proposal contemplates introducing two new categories of regulated token to supplement the FCA’s existing categories of “security tokens” and “e-money tokens”. These new categories, which broadly echo the taxonomy in MiCA, are (i) stable tokens whose value is linked to a single fiat currency; and (ii) stable tokens whose value is linked to assets other than a single currency (such as gold or multiple currencies).
The government anticipates that regulation would apply in relation to a long list of activities concerning such tokens. These include issuance, destruction, value stabilisation and reserve management, validation of transactions, facilitating access, settlement, custody and administration, executing transactions and fiat-token exchange. This list is intended to reflect the FSB’s recommendations in this area.
The consultation closes on 21 March 2021. Input received will feed into the government’s response, which will include more detail on how the proposed approach may be implemented in law.
More details here.
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