Earlier this year, authorities in the United Kingdom decided that a consultation and a call for evidence was necessary for regulating digital assets like stablecoins and others. This new development was a continuation of the two earlier proposed measures put forward by the authorities in March 2020.
The first measure was a consultation towards bringing some categories of certain digital assets under the control of the nation’s regulatory system. This phase ended in October 2020 and it is expected that conclusions and the proposed changes to the law would be made known to the public soon.
The second phase of the consultation is the government’s proposal towards regulating the use of stablecoins for retail payments. Stablecoins, generally, are known as crypto assets whose values remain stable because they are backed by an underlying asset which could be a commodity (oil, gold etc) or fiat currency (USD, Euros etc). According to the authorities, this would make them more reliable for the payments purposes and as a store of value.
What Will this Stablecoin Regulation Cover?
This new regulation would affect companies that issue stablecoins as a mode of payment, and companies that provide services for consumers that have to do with stablecoins. The government, however, has not made its position known on other classes of crypto assets like “utility tokens” and “exchange tokens” as they are not within its regulatory perimeter. The U.K. recognizes “security tokens” and “e-money tokens” as crypto assets under its supervision.
The authorities also stated that the Bank of England together with the Payment Systems Regulator (PSR) would perform oversight functions on this class of crypto asset.
Interestingly, you would recall that the Financial Conduct Authority (FCA) had banned crypto products in the country because they were prone to volatility and lacked a reliable valuation method. The current steps being taken by the government to regulate certain crypto asset is a step in the right direction as it follows the advise being given to them by experts.