The UK Treasury Department has released a consultation paper aimed at gathering stakeholder feedback on the government’s regulatory approach to cryptocurrencies and stablecoins.
The consultation Seeks opinions on how the UK can ensure that its regulatory framework “is designed to take advantage of new technology, support innovation and competition while reducing risks to consumers and stability” and takes advice from the Cryptoassets Task Force .
Since a large proportion of crypto assets are outside the supervision of regulators, they can pose a risk to consumers and lack financial guarantees, according to the Treasury Department.
The UK plans a “graduated and proportionate approach” to developing new crypto assets, with the paper’s focus on stable coins – cryptocurrencies that generally seek stable value by being backed by assets like the US dollar.
“[T]The landscape is changing rapidly. So-called stablecoins could pave the way for faster and cheaper payments and make it easier for people to pay for things or to save their money. There is also growing evidence of this [distributed ledger technology] This could have significant benefits for the capital markets and potentially fundamentally change the way they work, ”said John Glen MP, Secretary of the Treasury, in the introduction to the paper.
However, he said such developments could “pose a number of risks to consumers and, depending on their acceptance, to the stability of the financial system”.
In particular, the consultation will focus on developing a “sound regulatory environment” for stablecoin, which the UK Government believes poses the “most pressing” risks and opportunities.
Since the announcement of the Facebook-sponsored Libra project (known as Diem), regulators and governments around the world have raised concerns about the potential impact of so-called global stable coins on financial stability and even monetary sovereignty.
The UK’s Financial Conduct Authority has already issued guidelines on crypto assets – including exchange tokens such as Bitcoin, Ether and XRP – outlining which will and will not be under its jurisdiction in July 2019.
This new consultation will focus on the role of crypto-assets and stablecoins in payments and investments, as well as the use of blockchain or distributed ledger technology in financial markets. Additional regulatory measures that may be required in space are also being examined.
The paper marks the second crypto consultation led by the Treasury Department. The first, announced last summer and finalized in October, contained plans to step up surveillance of cryptocurrency actions to protect investors. The results will be released “in due course,” the Treasury Department said in the new paper.
The FCA recently banned the sale of derivatives and exchange-traded debt, stating that it considers the products unsuitable for retail customers due to the potential harm they pose.
Responses to the consultation paper will be accepted by March 21, 2021.