HM Treasury, also known as HMT, published a consultation on the broad approach to regulating cryptoassets and stablecoins in UK. It seeks views on how the UK can ensure its regulatory framework is equipped to harness the benefits of new technologies that support innovation and competition, while mitigating risks to consumers and financial stability. This consultation includes a call for evidence on investment and wholesale uses of cryptoassets and the broader use of distributed ledger technology, or DLT, in financial markets. The call for evidence seeks views on benefits and drawbacks of adopting the distributed ledger technology across financial markets, whether there are obstacles to the adoption of this technology, and the actions that government and regulators should consider in this area. This consultation closes on March 21, 2021.
In the existing legislation, a large proportion of cryptoassets fall outside or are likely to fall outside the regulatory perimeter. This means they may not be subject to the same consumer protection or safeguards found in other areas of financial services and payments. This may prevent benefits from being realized and exposes consumers to potential harm and, depending on the prevalence and value transferred, could pose financial stability and consumer risks. In light of this, HM Treasury is consulting on the broader regulatory approach to cryptoassets, including new challenges from stablecoins. The consultation reflects advice from the joint Cryptoassets Taskforce of UK, which was established in 2018 with a mandate to consider the risks and benefits posed by cryptoassets and distributed ledger technology in UK and to advise on the appropriate regulatory response.
The consultation document sets out the landscape for cryptoassets and their current status in UK regulation, outlines the proposed policy approach of the government, and sets out specific proposals with respect to cryptoassets used for payments purposes. The government proposes a staged and proportionate approach to regulation, which is sensitive to risks posed and responsive to new developments in the market. The government proposes to first introduce a regulatory regime for stable tokens used as a means of payment. This would cover firms issuing stable tokens and firms providing services in relation to them, either directly or indirectly, to consumers. The government also proposes to seek to ensure that tokens, which could be reliably used for retail or wholesale transactions, are subject to minimum requirements and protection as part of a UK authorization regime.
This document represents the first stage in the consultative process and focuses on establishing a sound regulatory environment for stablecoins, where the government judges that risks and opportunities are most urgent. The government will strategically assess new and emerging risks as this market continues to mature. Future regulation of a potentially wider set of tokens and services will be informed by this analysis, taking into consideration the views of industry, consumers, and regulators. If the proposals are adopted, HM Treasury and the relevant UK authorities will issue further consultations and guidance, including specific firm requirements.
Comment Due Date: March 21, 2021
Keywords: Europe, UK, Banking, Securities, Cryptoassets, Stablecoins, Proportionality, Regulatory Regime, Distributed Ledger Technology, Blockchain, HM Treasury
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