A proposed bill could give U.K. regulators more control over crypto assets like stablecoin that are used for payments, but it’s not clear yet how the rules will be interpreted.
Most crypto supporters in the U.K. are happy about a new bill that could include digital assets like stablecoin in the rules that govern local payments. But it’s unclear what the new rules will be like if the bill passes.
In September, Parliament is going to talk about the bill for the first time.
It will have to go through a complicated legislative process, which could be slowed down even more by the recent cabinet shuffle. People who support crypto are waiting for regulators to show how they plan to interpret and enforce the rules.
“We will have to wait to see what new rules are made as a result of the bill,” James Alleyne, a legal counsel at the London-based law firm Kingsley Napley who advises crypto firms on compliance, told CoinDesk in a statement.
The proposed rules for stablecoins are part of a bigger bill about financial services and markets that lays out the U.K.’s economic plan after Brexit. It wants to ensure that existing financial rules cover stablecoins, which are cryptocurrencies tied to a fiat currency, usually the U.S. dollar, and are used for payments.
In a broad sense, these digital currencies are called “digital settlement assets,” or DSAs. The bill also gives the U.K. Treasury the responsibility of defining DSAs and giving the Bank of England, the Financial Conduct Authority, and the Payments Systems Regulator different powers to ensure the rules are followed.
Terra’s influence
The U.K. is the most recent big country to try to pass laws about stablecoins. It wasn’t helped by the fall of terraUSD, a stablecoin that quickly stopped being tied to the U.S. dollar in May and caused a $40 billion business to fail. The U.S. and Singapore are also working together to make stablecoin issuers follow the rules.
In the meantime, European Union policymakers recently reached an agreement on the Markets in Crypto Assets (MiCA) bill. This bill wants to set up licensing rules for crypto companies and make it hard for stablecoin issuers who want to do business in the EU.
At least six experts in the field report that the U.K.’s proposed steps were a good idea and fit with the country’s plans to become a global hub for crypto.
Lisa Cameron, a member of Parliament and chairwoman of the cross-party group for crypto, said, “I see this as a key piece of legislation for financial services. I hope it will help us make the most of the opportunities of Brexit and find a way to regulate crypto that works for the U.K.”
“By making stablecoins subject to regulation, the bill paves the way for more adoption in the U.K.,” she said. “This will be a key area of focus for parliamentarians as we look into the sector as a whole.”
Read: A group in the UK Parliament is looking into cryptography to make policy recommendations.
Blair Halliday, managing director of the U.K. for Gemini, a crypto exchange and custodian, called the law a “positive move that recognizes the important role that these assets will play in our economy and financial system in the future.”
Systemic issuers of stablecoins
Like the EU’s MiCA law, the U.K.’s proposed rules put a lot of weight on systemic stablecoins. This is a term for stablecoins that are issued on a large enough scale that if they fail, they could threaten financial stability.
But while MiCA sets requirements for stablecoin issuers to be able to work in the EU, the U.K. bill assumes stablecoin issuers are already working and wants to give regulators the power to find and watch DSA service providers that are at risk of failing or going bankrupt, according to Matthew Nyman, a lawyer at the CMS law firm in London who specializes in crypto and blockchain law.
“This bill looks at the worst-case scenario,” Nyman said, adding that the U.K. still has “zero explicit regulation” for cryptocurrencies and that the new bill doesn’t say whether a DSA service provider is allowed to operate, how that provider should operate, or who needs to authorize it.
“You could be forgiven for thinking that if they’ve planned something for the end… That means they already know what will happen at the start. “But they’re doing it backward,” said Nyman.
The focus on failing DSA service providers supports the overall message of the U.K. government’s post-Brexit economic strategy as well as the positions of regulators in the U.S. and the EU on limiting the risks of systemic stablecoin issuers.
The U.K.’s new finance minister, Nadhim Zahawi, said when he introduced the markets bill that the goal is to make the country a stronger tech hub while “safely” adopting crypto assets.
Nyman said that the U.K. government’s plans to talk about wider digital assets like bitcoin (BTC) later this year will be very important for figuring out where it really stands on being crypto-friendly.
“That will be the key test of whether what the government departments and regulators are actually doing matches what the politicians are saying,” he said.
Nyman also said that it’s still unclear what role each regulator will play in setting up everything that’s “missing,” like a way for DSA service providers to get permission to do their jobs.
“The BoE will have to approve any stablecoin, and there are steps that companies will have to take before they can get approval,” the PSR said in an email to CoinDesk.
The proposed rules say that the BoE will have the final say on stablecoin issuers that could threaten the U.K. financial system or the central bank’s ability to “act as a monetary authority.”
In a consultation, the BoE will talk about how it plans to regulate systemic stablecoins, including whether it will give companies permission to use them next year. In a consultation, the government lays out proposed regulations in a document and asks the public or industry representatives for feedback. The PSR also wants to tell people how it plans to regulate DSAs, including stablecoins.
Alleyne says that the FCA, which has already given crypto companies licenses under the government’s anti-money laundering rules, will likely continue to focus on protecting consumers, while the BoE will likely focus on keeping the economy as a whole stable.
Delays
The bill may take longer to pass because of problems in the U.K. government.
“Until we get a new [prime minister], Parliament will never pass anything of serious importance, so we’re basically on hold until then,” Ryan Shea, a crypto economist at Trakx, a Paris-based crypto index platform with a U.K. presence, said in an interview.
Adam Jackson, who is in charge of policy at the U.K.-based crypto lobby group Innovate Finance, is worried that the bill won’t become law until next year and that regulators won’t announce new rules until 2024.
