The United Kingdom is getting ready to introduce new legislation for digital assets and stablecoins by June or July 2024, according to Economic Secretary Bim Afolami.
Speaking at the Innovate Finance Global Summit in London on Monday, Afolami stated that the government is preparing legislation encompassing stablecoins and a range of digital asset activities.
“We are now working at pace to deliver the legislation to put our final proposals for our regime in place,” Afolami said. “Once it goes live, a whole host of crypto asset activities, including operating an exchange, taking custody of customers’ assets and other things, will come within the regulatory perimeter for the first time.”
The economic secretary was sparing with details on exactly what the new legislation may look like and how it will be enforced, but what is certain is that it will build on the foundation laid down by the passage, last June, of the landmark Financial Services and Markets Act (FSMA) 2023, which allowed for stablecoins and digital assets to be treated as regulated activities in the United Kingdom.
Any further incoming changes will also help deliver on Prime Minister Rishi Sunak’s stated intention to make the country a digital asset hub while ensuring the U.K. keeps pace with its European neighbors and its Markets in Crypto Assets (MiCA) regulation.
UK regulatory efforts
The U.K. parliament passed the FSMA 2023 in June last year. The bill extended the banking rules of the previous FSMA iteration—such as maintaining adequate capital to withstand financial shocks and providing transparent information to customers—to stablecoins and digital assets. This means that, for the first time, digital assets were officially recognized as regulated financial activity in the U.K.
The FSMA also gave the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)—the former being the country’s top financial sector regulator and the latter the banking watchdog—the necessary powers to begin implementing the HM Treasury’s goals, as set out in a February 2023 consultation on the Future Regulatory Regime for Cryptoassets.
This included establishing an issuance and disclosure regime tailored to digital assets, strengthening the rules that apply to financial intermediaries and custodians of digital assets, and adopting a bespoke, digital asset-specific market abuse regime.
The implementation process of the FSMA 2023 will be gradual, but the process began in earnest with the introduction of the ‘Financial Promotions Regime’ for digital assets, designed to govern the way firms operating in the U.K. can advertise and market their products, which came into force on October 8.
The regime is effectively an updated version of previous financial promotions regulation, adding specific rules for “cryptoassets” to those for traditional financial instruments.
Specifically, under the new regime, any promotion of digital asset products or services needs to attach a ‘clear warning,’ and firms marketing digital assets to U.K. consumers need to introduce a 24-hour cooling-off period for first-time investors to allow them to think about and possibly back out of, spur-of-the-moment or potentially unwise investments.
Firms now only have four lawful routes to communicate digital asset promotions in the U.K.: The promotion can be communicated by an “authorized person,” as defined by the FCA. This includes ICVC, the Society of Lloyd’s, and persons with Part 4A permission; an unauthorized person can communicate a promotion that has been approved by an authorized person; the promotion can be communicated by a digital asset business registered with the FCA under the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs); and/or the promotion meets the conditions of an exemption in the Financial Promotion Order.
Promotions not using one of these routes will be considered in breach of the new rules, which caused some consternation in the market.
Monday’s speech by Afolami signals the government’s commitment to continue to bring digital assets into the country’s financial sector laws and regulations.
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