The UK government is reportedly slated to reveal its crypto regulatory framework in the coming weeks, and it will include a special focus on stablecoins, per anonymous sources cited by CNBC.
British Finance Minister Rishi Sunak is expected to make the announcement, CNBC reported, citing four industry sources familiar with the matter.
The sources, who spoke on the condition of anonymity, told CNBC that the new regulatory regime is likely to be favorable to the space, helping create legal clarity around the sector. However, they noted that details of the plan are yet to be finalized.
According to the sources, the lawmakers have “shown a willingness to understand the complexities of the crypto market” and stablecoins, which are digital assets pegged to fiat currencies like the US dollar.
Moreover, the Treasury has reportedly been in discussions with numerous crypto firms and platforms, including the US-based crypto exchange Gemini, which also has offices in London.
Notably, the Winklevoss brothers-owned Gemini issues its own stablecoin dubbed the gemini dollar (GUSD), a 1:1 USD-backed stablecoin.
The controversy around stablecoins started several years ago when regulators expressed concern that they may not be fully backed by an equivalent amount of reserves.
Tether (USDT), the largest stablecoin in terms of market capitalization, has been at the center of this controversy. That is because the stablecoin has been avoiding revealing a breakdown of its cash reserve. And when Tether shared a somewhat more extensive breakdown of its reserve in March 2021, it turned out that only 2.9% of USDT tokens are backed by cash reserves.
Nevertheless, the Treasury’s new crypto regulatory push comes after the Bank of England (BOE) asked lawmakers last week to limit the risks posed by crypto to financial stability by expanding regulatory frameworks.
In a letter to several bank CEOs, BOE Deputy Governor Sam Woods acknowledged that there has been “increased interest” from banks and investment firms in “entering various crypto markets,” but noted that there could be some risks which are investigated by the Basel Committee on Banking Supervision (BCBS) and other international bodies.
“However, that work has yet to complete, and there remains a need for the PRA [Prudential Regulation Authority] to ensure firms are appropriately and consistently taking account of the risks in the interim,” Woods added.
Meanwhile, a key deadline is approaching for crypto firms operating in the UK, which mandates them to be registered with the Financial Conduct Authority (FCA) from March 31.
However, an FCA spokesperson told CNBC last Thursday that over 80% of the crypto firms had either withdrawn their applications or had been rejected. A number of big names in the industry, including Revolut, Blockchain.com, and Copper, have reportedly failed to register with the body.
“We’ve seen a high number of the cryptoasset businesses applying for registration not meeting standards there to help ensure firms are not used to transfer and or disguise criminal funds,” the spokesperson was quoted as saying.
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