At present the UK’s financial services regulatory framework does not specifically regulate certain financial cryptoassets. This means that these cryptoassets are not subject to the same consumer protections as more traditional financial assets.
In this context, on 7 January 2021, the Treasury released a consultation paper setting out its proposed approach to regulating cryptoassets and, in particular, ‘stablecoins.’
Stablecoins are a form of cryptoasset, which seek to stabilise their price by tying their value to a traditional recognised asset such as, for example, gold or a fiat currency. The stability in their price means stablecoins have the potential to be used as widespread means of payment in retail and cross-border transactions. They would have the potential to deliver the benefits of distribution ledger technology (DLT), which could pave the way for a payment system that is faster, cheaper and more resilient than traditional payment systems. At the same time, the government recognises that developments in this area could pose risks to financial stability and consumers, which is why it proposes to introduce a regulatory regime for stable tokens used as a means of payment.
In respect of other unregulated cryptoassets, which are primarily used as a means of exchange (such as Bitcoin), the Government’s view is that, so long as the price of such assets remains highly volatile, it is unlikely these types of cryptoassets can reliably be used as a means of payment. Instead, it believes the dominant use of such assets is for speculative investment purposes. FCA research also suggests that consumer awareness of the risks associated with the purchase of cryptoassets is relatively high. Despite this, the Government is considering making such cryptoassets subject to more stringent regulation in relation to consumer communications via the financial promotions regime and anti-money laundering/counter terrorist financing regulation.
The paper released on 7 January 2021 marks the first stage of the consultative process during which the Treasury seeks to obtain views from industry and stakeholders on its approach. The consultation closes on 21 March 2021.
In October 2020, the Treasury also concluded a consultation on bringing certain cryptoassets into scope of financial promotions regulation to enhance consumer protection. Further details of the proposed measures are to be released in due course.