U.K. Finance Minister Nadhum Zahawi introduced the much-discussed Financial Services and Markets Bill to Parliament on Wednesday, containing provisions explicitly designed to address the use of digital assets, including stablecoins.
The bill would further integrate definitions for digital assets and digital asset service providers into existing financial legislation. For example, it introduces a definition of “digital settlement asset” into multiple pieces of enacted legislation:
“Digital settlement asset means a digital representation of value or rights, whether or not cryptographically secured, that:
- Can be used for the settlement of payment obligations
- Can be transferred, stored, or traded electronically, and
- Uses technology supporting the recording or storage of data (which may include distributed ledger technology)
One practical consequence of this is that the Treasury would have the power to designate any ‘digital settlement asset’ as a recognized payment system, bringing it within regulatory oversight of the Bank of England (BoE)—but only if any deficiencies in that service would be likely to threaten the stability of the U.K. financial system or have other serious consequences for businesses “or other interests throughout the United Kingdom.”
For context, other systems designated as recognized payment systems include Bacs, CLS, and ICE.
These changes are chiefly designed to build a path for stablecoins to be regulated for use as payment in the U.K. A press release alongside the Bill reads:
“To ensure the U.K remains at the forefront of new technologies and innovations, the Bill will enable certain types of stablecoins to be regulated as a form of payment in the U.K.”
The bill also enables the creation of Financial Markets Infrastructure Sandboxes to test new technologies for use in financial markets.
Though the bill was introduced without much comment in Parliament, Zahawi gave a speech to Mansion House on Tuesday, discussing the bill’s aims.
“[The bill is] a landmark piece of legislation that gives us the tools we need to seize the opportunities and create a safer, better system for consumers,” he said.
“It reinforces the U.K.’s position as a leading centre for technology as we safely adopt crypto assets,” the finance minister added.
The government has promised new rules around stablecoins as early as last year. The Deputy Bank of England Governor confirmed in a speech at the Qatar Centre for Global Banking and Finance’s annual conference that stablecoin legislation would be introduced before the August parliamentary break. The Bill’s stablecoin provisions are expected to set standards for using stablecoins as means of payment, rules around how stablecoins can be marketed, and other investor protections.
The bill is one prong of the U.K.’s legislative divorce from the European Union (EU) after Brexit and is intended to repeal “hundreds” of retained EU laws, according to Zahawi. As the government looks at what EU legal infrastructure might be replaced with, it has made clear that it intends to bring about another “Big Bang” for London, referring to a sudden period of deregulation which took place in the U.K.’s capital in the 80s.
However, the move by Zahawi is contentious. The U.K. government is in the midst of a tumultuous leadership contest following the unceremonious ousting of Prime Minister Boris Johnson earlier this month, an ousting which itself led to Zahawi taking over as a caretaker Chancellor.
It has a long road ahead before it has a shot at becoming law. The Financial Services and Markets Bill will be debated, scrutinized, and amended by the House of Commons and the House of Lords before being put forward for final assent—if it survives that far.
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