{"id":28,"date":"2024-05-01T09:59:18","date_gmt":"2024-05-01T09:59:18","guid":{"rendered":"https:\/\/iqeq.com\/gb\/2024\/05\/01\/crypto-regulation-in-the-uk-what-are-stablecoins\/"},"modified":"2024-08-07T12:44:38","modified_gmt":"2024-08-07T12:44:38","slug":"crypto-regulation-in-the-uk-what-are-stablecoins","status":"publish","type":"post","link":"https:\/\/iqeq.com\/gb\/insights\/crypto-regulation-in-the-uk-what-are-stablecoins\/","title":{"rendered":"Crypto regulation in the UK: what are stablecoins?"},"content":{"rendered":"
\n

By Angus Irvine, Principal Consultant<\/em><\/p>\n

In February 2023, the UK Government announced plans to legislate cryptoassets, with a view to make the UK the \u201cmost open, well-regulated, and technologically advanced capital markets in the world.\u201d The rationale behind the legislative approach was, along with other jurisdictions, to bring cryptoassets into the same regulatory perimeter as other asset classes. Thus, attempting to bring some degree of confidence to the market.<\/strong><\/p>\n

We\u2019ve produced a three-part series to discuss the status of crypto regulation in the UK and the consequences of the Financial Conduct Authority\u2019s (FCA) DS23\/4 discussion paper.<\/p>\n

Under these new plans, the UK Government intends to regulate two specific areas: issuance and custody of regulated stablecoins, and the use of stablecoins as a means of payment. But what are stablecoins, and what does their regulation mean to the cryptoasset market?<\/p>\n

What\u2019s happened so far?<\/h2>\n

The Cryptoasset Registration regime was introduced by the insertion of the new Regulation 14A into the Money Laundering, Terrorist Financing and Transfer of Funds Regulations.<\/p>\n

As a result, since 10 January 2021, UK domiciled cryptoasset exchange providers and custodian wallet providers have been required to register with the FCA for the purpose of anti-money laundering and counter-terrorist financing (AML\/CTF) supervision (commonly known as 5MLD).<\/p>\n

Since then, only\u00a0 47 firms have secured their registration; an 86% failure rate.<\/p>\n

Indeed, in the 12 months to April 2024 the FCA only received 28 registration applications.\u00a0 During the same 12-month period only 13% of cases determined were successful. On 8 October 2023, firms marketing qualifying cryptoassets to UK customers were brought within the scope of the FCA\u2019s financial promotions regime via the \u2018Cryptoasset Financial Promotion Rules\u2019.<\/p>\n

Within this context, the next phase is to bring cryptoassets into the perimeter of the Financial Services and Markets Act 2000 (FSMA). To that end, on 6 November 2023, the FCA published DP23\/4: Regulating cryptoassets \u2013 Phase 1: Stablecoins.<\/p>\n

Under these plans, the UK Government intends to regulate in two specific areas:<\/p>\n

1 (i) The issuance and (ii) custody of regulated<\/strong> stablecoins under the Act, and<\/p>\n

2 The use of stablecoins as a means of payment under the Payment Services Regulations 2017 (the PSRs) and the Electronic Money Regulations 2011 (the EMRs)<\/p>\n

Plans for the implementation of Phase 1 will now follow and are expected to be finalised by mid-2024.<\/p>\n

Thereafter, in Phase 2, the plan is to bring other cryptoasset-related activities into the scope of the FSMA (Regulated Activities) Order 2001 (the RAO).<\/p>\n

What exactly is a cryptoasset?<\/h2>\n

The UK Government defines a cryptoasset as \u201ca cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically\u201d.<\/p>\n

What is a stablecoin?<\/h2>\n

Per the discussion paper, a stablecoin is \u201ca category of cryptoassets that aims to maintain a stable value relative to a specified asset, or basket of assets, providing perceived stability when compared to the high volatility of unbacked cryptoassets.\u201d<\/p>\n

Stablecoins are predominantly used to facilitate transactions between cryptoassets and are a key component of the functioning of the cryptoasset market. They also provide an opportunity for consumers to enter and exit the cryptoasset market.<\/p>\n

What is a regulated stablecoin?<\/h2>\n

A regulated stablecoin constitutes a category of stablecoins that meet two cumulative conditions:<\/p>\n