With crypto-assets becoming increasingly mainstream, yet remaining largely unregulated, the authorities have struggled to strike a balance between innovation and risk. Today, concrete legislative proposals are imminent. The UK government recently disclosed its intention to introduce comprehensive cryptocurrency legislation within the next six months.
UK to Regulate Cryptocurrencies in 6 Months' Time
The British government has signalled its intention to introduce legislation on cryptocurrencies over the next six months. Treasury Secretary Bim Afolami says the government is "pushing very hard" to implement rules on stablecoins and pledge services for digital assets within that timeframe.
Back in October 2023, the Bank of England and the Financial Conduct Authority (FCA) announced wide-ranging plans to oversee the cryptocurrency sector in a coordinated manner. The timetable for the stablecoin rules indicated a consultation on the final rules by mid-2024 and implementation of the stablecoin regime by 2025.
The government's statements suggest that it wants to speed up the process of regulating cryptocurrencies before the next general election. Passing legislation on cryptocurrencies could be seen by the current administration as an opportunity to gain political support.
Overall Regulatory Timetable Unclear
While Afolami specified a six-month target for stablecoin and staking rules, the timeline for wider crypto regulation remains uncertain.
“There’s just a huge amount going on, so I don’t want to commit to that now”, says Treasury Secretary, Bim Afolami.
By announcing that, the government recognises both the risks and opportunities presented by cryptocurrencies, it intends to implement proportionate regulation to protect consumers and encourage innovation. Whilst the cryptocurrency industry and investors will no doubt welcome the clarity of the regulations, they will be keeping a close eye on the Government's proposals to ensure that the new rules strike the right balance.
New Crypto Rules : The Significance for Stablecoins in the UK
Stablecoins are cryptocurrencies linked to a fiat currency, such as sterling or the dollar in order to stabilise their value. In the UK, stablecoins and the companies that issue them could face new regulations over the next six months, which could have a significant impact on their business.
Possible Restrictions On Certain Types of Stablecoins
Under the new regulations, restrictions or bans could be imposed on certain types of stablecoin, particularly those considered to be higher risk. For instance, stablecoins that are not guaranteed by regulated entities or are not audited to prove their reserves could be subject to limitations.
However, stablecoins indexed to currencies issued by governments and guaranteed by regulated financial institutions seem less likely to encounter problems in a new regulatory framework.
All in all, companies offering stablecoins and staking services in the UK need to prepare for forthcoming legislation, which may require significant changes to comply with the rules.
Crypto Staking Rules
The government also intends to introduce legislation on so-called 'staking', a process by which cryptocurrency holders lock in their assets to earn rewards, sometime within six months. Further rules could legitimise staking and allow the sector to grow, but could reduce returns if tax or compliance costs rise.