Industry sources say the UK government is set to reveal its plans for the regulation of the crypto market with a focus on stablecoins. Rishi Sunak, the British Finance Minister, is expected to make an announcement in the coming weeks about the new regulatory regime for digital assets.
The sources didn’t give many details as plans are still being worked upon but they did say that it’s likely to be favorable to the industry. It will provide legal clarity for the sector that to date lacks clarity and regulation. Crypto experts attributed the UK government’s move into the digital assets market as a response to US President Joe Biden’s recent executive order on digital assets.
Treasury officials, as per the sources, want to understand the complexities of the crypto market and stablecoins. The Finance department has been in talks with firms and trade groups, including crypto exchange Gemini which issues its own stablecoin called the Gemini dollar. Market watchers outlined that stablecoins have recorded exponential growth in terms of usage over the past few years. This is related to the rising interest in cryptocurrencies. A good example is Tether, the world’s largest stablecoin which is up from about $4 billion two years ago. It now has a total circulating supply of more than $80 billion.
Regulators have expressed concerns that stablecoins may not be fully backed by an equivalent amount of reserves. They are also worried about it being used for money laundering and other illicit activities. Authorities highlighted concerns about possible exposure of the financial system to cryptocurrencies.
Last Thursday, the Bank of England called for policymakers to expand regulatory frameworks to limit the risks posed by cryptocurrencies. Moreover, the BOE’s deputy governor Sam Woods told several bank CEOs that investment firms and financial institutions have been showing an increased interest in entering various crypto markets.