- In the coming weeks, Britain will lay out a new plan for the regulation of the crypto industry, sources have revealed.
- The announcement is set to be made by Finance Minister Rishi Sunak and will be focused on stablecoins.
- Should they fail to register with the British regulator within the week, hundreds of crypto companies will be closed.
The regulations being prepared by the UK government are largely targeted at stablecoins. The nature of the asset class and its rapid growth worries the monetary authorities, as it could be used to destabilize the financial system and to evade the sanctions placed on Russia.
In charge of announcing the new regulatory regime is British Finance Minister Rishi Sunak, according to four sources familiar with the matter, as revealed to American network CNBC.
So far the details of the new regulatory plan are unknown. The sources, who wished to remain anonymous, noted that there is a favorable environment for the crypto industry. The goal of Britain’s regulatory bodies is to establish a regime that provides transparency in cryptocurrency trading.
Treasury officials are willing to coordinate actions with the main financial companies in the sector. The overall aim of the regulations is to better understand the complexity of the stablecoin market, the value of which is derived from existing fiat currencies, for example the U.S. dollar, the yen, or the Great British pound sterling itself.
The Exponential Growth of Stablecoins
Among the companies that the ministerial department has summoned to discuss the matter is Gemini, a cryptocurrency exchange which has its own stablecoin called the ‘Gemini dollar’, and is pegged to the U.S. dollar.
The growth of stablecoins in recent years has been extraordinary, following the trend of the cryptocurrency market at large. These digital assets have grown not only in number, but also in supply of currency. Tether, the world’s largest stablecoin, has risen from its valuation of $4 billion two years ago, to more than $80 billion today.
This exponential growth and rapid adoption has raised concerns among UK and global regulators, with the main concern being that they are not sufficiently backed in fiat currency to cover the number of tokens issued.
On the Flipside
- Another source of concern has been of stablecoins being used in criminal activities such as money laundering.
- Likewise, institutions fear a possible exposure of the traditional financial system to Bitcoin and other cryptos.
- Governments in Europe, the United States, and members of NATO are also concerned that Russia is using crypto to evade Western sanctions.
British Banking Pushes for More Regulations
Last week the Bank of England asked the British Parliament to expand the regulatory framework for cryptocurrencies and limit the risks posed to financial stability. In a letter to several bankers, BOE Deputy Governor Sam Woods highlighted the interest of banks and finance companies in “entering various crypto markets.”
The new measures, which the British Treasury is expected to announce in the coming weeks, are set for approval after U.S. President Joe Biden issued the executive order to regulate cryptocurrencies in coordination with U.S. federal agencies.
European regulators have launched an aggressive campaign to warn investors about the risks of cryptocurrencies. Globally, the campaign is spearheaded by the International Monetary Fund (IMF).
UK Could Run out of Cryptocurrency Trading
Until now, the United Kingdom had not taken the initiative in proposing a clear regulatory framework for cryptocurrencies. But, with the new rules on the way to being approved, the country could be left without a cryptocurrency trade.
The Financial Conduct Authority (FCA) has issued an ultimatum to several dozen companies in the sector to register with the governing body before the end of the month under the threat that failure to do so could result in them being shut down, The Financial Times reported.
A “high number” of crypto companies would likely fail to comply with the standards required to prevent money laundering, and, so far, only 33 companies linked to cryptocurrency trading have been able to register.
Meanwhile, close to 80% of the companies in the sector which submitted themselves for evaluation have been rejected, or forced to withdraw their applications. Last year the FCA investigated some 300 companies and has further increased the pressure this year.
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