Britain to reveal stablecoin regulation plans, sources say

Britain’s Chancellor of the Exchequer Rishi Sunak leaves 11 Downing Street in London on March 23, 2022.

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LONDON — The UK government will soon reveal plans to regulate the cryptocurrency market, focusing on a fast-growing type of token known as stablecoins, according to four industry sources familiar with the matter.

British Finance Minister Rishi Sunak is expected to make an announcement in the coming weeks on a new regulatory regime for cryptocurrencies, the sources told CNBC, preferring to remain anonymous as the information has not yet been made public.

Treasury declined to comment when asked about the plans by CNBC.

Details of the plans are still being finalized, however sources who spoke to CNBC say they are likely to be favorable to the industry, bringing legal clarity to a sector that has so far lacked regulation.

According to the sources, Treasury officials have shown a willingness to understand the intricacies of the crypto market and so-called stablecoins, digital assets that derive their value from existing currencies like the US dollar.

The department has been in talks with several companies and trade groups. That includes the Winklevoss brothers’ Gemini crypto exchange, one of the sources said. Gemini issues its own stablecoin called the Gemini dollar, which is pegged to the US dollar.

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Stablecoins have seen exponential growth in terms of usage in recent years, along with the growing interest in cryptocurrencies in general. Tether, the world’s largest stablecoin, now has a total circulating supply of more than $80 billion, up from $4 billion two years ago.

But those tokens have also caused concern among regulators, who worry that they are not fully backed by an equivalent amount of reserves and are used for money laundering and other illicit activities.

Meanwhile, regulators are concerned about the possible exposure of the financial system to bitcoin and other digital currencies, as well as their potential use to evade sanctions imposed on Russia amid its invasion of Ukraine.

Financial stability risks

The Bank of England on Thursday called on lawmakers to expand regulatory frameworks to limit the risks cryptocurrencies pose to financial stability.

BOE Lieutenant Governor Sam Woods wrote a lyrics to several bank CEOs saying there has been “increased interest” from banks and investment firms in “entering various crypto markets.”

The Treasury move is seen as a response to President Joe Biden’s proposal. executive order calling for the coordination of different US federal agencies to regulate cryptocurrencies, the sources said. Several industry insiders have complained about the lack of similar action by the UK.

Various companies including Revolut, and Copper could be forced to scale back its UK crypto operations this week if they fail to enter the Financial Conduct Authority’s registry of crypto assets in time for the March 31 deadline.

The FCA said that a “high number” of crypto businesses do not meet required anti-money laundering standards. Only 33 companies have reached the registry. More than 80% of the companies evaluated by the regulator have withdrawn their applications or have been rejected.