Blockchain Cryptocurrency Europe Fintech Fintech Ecosystems Paytech Regtech Trending

The UK Government Steps Closer to Mainstream Stablecoin Adoption With Latest Legislation

The UK Government introduced new legislation this week that aims to enhance the competitiveness of the UK’s financial services sector in a bid to unlock growth and welcome increased investment across the UK.

At a whopping 330 pages long, the Financial Services and Markets Bill, which was introduced at a glittering ceremony held at London’s Mansion House on 20 July, is the largest piece of financial services legislation since the Financial Services and Markets Act of 2000.

As is a recurring trend among emerging pieces of UK financial legislation, the Bill is a rejection of hundreds of various EU retained law, and pioneers legislation that ‘works in the interest of the British people’.

The Bill will implement the government’s vision for the sector that is ‘open, green, technologically advanced and globally competitive,’ while maintaining high levels of consumer protection.

Speaking at Mansion House on Wednesday night, Chancellor of the Exchequer, Nadhim Zahawi described the bill as “a landmark for financial services in the UK.”

“Through the introduction of this Bill, we are repealing hundreds of pieces of burdensome EU regulations and seizing on the benefits of Brexit to ensure the financial sector works in the interests of British people and businesses,” he said during his speech.

The Bill succeeds the outcomes of the Future Regulatory Framework review and will grant financial regulators with more control in regard to setting the requirements for UK financial services.

The redirecting of this responsibility is set to complement the regulators’ existing objectives of ensuring the safety and soundness of firms, protecting and enhancing the integrity of the UK financial system, promoting competition in the interests of consumers, and ensuring that consumers receive an appropriate degree of protection.

The Bill also includes enhanced mechanisms for engagement with stakeholders and accountability, scrutiny and oversight of the regulators by Parliament and the Treasury. This includes a new ‘rule review’ power which will enable the government to direct the regulators to review their rules where it is in the public interest.

To maintain the UK’s position as an international, open and competitive financial centre, the Bill will reform EU-derived legislation governing our capital markets, ensuring that our rulebook is fair, outcomes-based and maintains high regulatory standards.

This includes removing the share trading obligation and double volume cap from the EU’s 2018 MiFID II, which has previously restricted how and where firms can execute trades, shifting more power over to the FInancial Conduct Authority (FCA) which is set to leverage new powers to enhance the transparency and effective function of the market.

The Bill also awards new powers to the Government and regulators to better enable them to implement mutual recognition agreements – which are agreements between two trading partners, designed to remove technical and regulatory barriers to trade.

A stable focus on stablecoins

Adhering to the sustained public interest in new technologies, and particularly in regard to the emerging use of cryptocurrencies and digital assets as a means of payments, section 22 of the Bill will subject certain types of stablecoins to regulation in an attempt to guide its transition into mainstream transactions.

The scope of this regulation will include ‘digital settlement assets,’ which includes any digital representation of value or rights, whether or not cryptographically secured, that ‘(a) can be used for the settlement of payment obligations; (b) can be transferred, stored or traded electronically, and (c) uses technology supporting the recording or storage of data (which may include distributed ledger technology).’

In fostering these new innovations, the Bill will also enable the creation of Financial Markets Infrastructure Sandboxes, allowing firms to test the use of new technologies and practices in financial markets, increasing the efficiency, transparency and resilience of new products.

Blair Halliday, head of UK at Gemini
Blair Halliday

Responding to this, Blair Halliday, head of UK at Gemini, a regulated cryptocurrency exchange, wallet and custodian, describes the Bill as “a positive move that recognises the significant role that these assets will play in our economy and financial system in the future.”

Detailing how “fundamentally important” regulation is to the company, Halliday affirms that the Bill “paves the way for ensuring greater consumer protection, while fostering innovation and more widespread digital asset adoption.”

The Bill revealed the launch of a separate consultation process on the regulatory approach for wider crypto assets, which is scheduled for later this year.

“We hope the consultation will balance the scale of the opportunity for the UK to reach its potential as a crypto asset hub and also the need for appropriate safeguards for the country’s crypto investors,” comments Halliday.

Adding to this industry response, David Carlisle, vice president of policy and regulatory affairs at the London-based blockchain analysis provider Elliptic, speaks of the benefits the Bill will bring to financial innovation in the UK.

David Carlisle, vice president of policy and regulatory affairs at Elliptic
David Carlisle

“By providing a clear legal framework for stablecoins, the UK can harness stablecoins to innovate in the payments space, while ensuring financial stability and soundness,” Carlisle explains. “With this Bill, the UK has set the pace in the global race to be at the forefront of crypto innovation.

“Tech firms and innovators building in the stablecoin space will now see the UK as a clear leader in this space – over the next couple of years we can expect to see companies in the stablecoin space look to the UK as a place where they’ll want to do business.

“With the EU recently agreeing on its MiCA regulatory framework, the pressure has been on the UK to take bold, proactive steps to ensure its financial sector remains at the cutting edge of innovation. Increasingly, governments see crypto as an essential foundation of future jobs and economic growth – as was demonstrated by Dubai’s announcement this week to pursue economic opportunities in the Metaverse.

“It’s clear that governments no longer see crypto as a passing fad, but rather as a critical feature of future financial markets that they must work to harness now, or risk missing out on this new wave of innovation.

“All eyes will now be on the US, where bipartisan legislation on stablecoins is expected to be introduced in Congress imminently. Earlier this year President Biden set out a bold vision to position the US at the forefront of crypto innovation, but legislative action has lagged.

“With the UK and EU already out of the gates, the US will face mounting pressure to pass stablecoin legislation or face the prospect of falling behind in this rapidly accelerating race to innovate through digital assets.”

As part of plans to ensure consumers are protected, the legislation includes measures that will safeguard access to cash for generations to come; powers to enable the payments systems regulator to direct banks to reimburse victims of APP fraud; and establishes a new regulatory pathway for firms to be able to approve financial promotions, ensuring they better reflect FCA rules which state that promotions should be fair, clear, and not misleading.

As part of this approach, the government will ensure greater financial inclusion through powers enabling credit unions, which provide low-interest forms of credit, to offer a wider range of products to their members

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

Related posts

Queens Speech Reveals New Online Safety Bill to Safeguard Children on the Internet

Polly Jean Harrison

Behind the Idea: Comentis

Tyler Pathe

PPS on Gift Cards: Not Just for Christmas and Handy in a Crisis

Polly Jean Harrison