UK Finance Ministry invites public input on digital currency regulation

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The U.K. Ministry of Finance is inviting public input on its proposed laws to govern ‘crypto-assets and stablecoins.’ Known as Her Majesty’s Treasury, the Ministry has opened consultation on the laws until March 21.

In its call for evidence, the Ministry stated that it intends to foster innovation and maintain the U.K.’s position as a world leader in financial technology, all while “maintaining the highest regulatory standards so that people can use new technologies reliably and safely.”

The U.K. government has taken a number of measures in the past three years to protect the public from digital currency-related exploitation. These include clarifying the regulatory perimeter through the FCA and communicating minimum policy expectations for stablecoins through the Bank of England and HM Treasury. It has also implemented the Fifth Anti-Money Laundering Directive (AMLD5) and banned the sale of digital currency directives.

HM Treasury is recommending an approach in which independent regulators design and implement regulations. This approach will allow digital currency firms to continue evolving and developing rapidly. It will also allow the integration of international regulations for specific niches in the industry, the Ministry stated.

The proposed changes recommend an expansion of the regulatory perimeter in due time. HM Treasury admitted that the U.K. digital currency market is currently quite small, but growing rapidly. As this industry expands, the government is seeking to ensure that “their use does not threaten stability and safeguards are in place to avoid their use in illicit activities.”

“The government is therefore considering an approach in which the use of currently unregulated tokens and associated activities primarily used for speculative investment purposes, such as Bitcoin, could initially remain outside the perimeter for conduct and prudential purposes. […] Utility tokens – those used to access a service – would also remain outside the authorisation perimeter.”

For stablecoins, the government believes they could pose a risk to financial stability, consumers and competing financial services.

“The government therefore 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 proposals have been well received by some digital currency experts. Tim Swanson, the head of market intelligence at London-based DLT-based financial infrastructure firm Clearmatics praised the proposals, claiming they were better than the U.S. OCC’s office efforts. He cited the inclusion of the term Principles for Financial Market Infrastructures (PFMI) as an indicator that HM Treasury had “done its homework” on the market.

HM Treasury released a draft reg approach requesting public comment.

worth pointing out that unlike AC Brook's letter last week, HM Treasury specifically mentions PFMIs a dozen times and "systemic" appears 40 times. that's how we know these guys have really done their homework. https://t.co/4LshNYNkIo

— Tim Swanson (@ofnumbers) January 9, 2021

See also: CoinGeek Live panel, Digital Currency & Global Compliance: Tools & Tips for Exchanges, Wallets & Other Service Providers