U.K. Chancellor of the Exchequer Nadhim Zahawi laid out plans in the Financial Services and Markets bill to regulate stablecoins.
The bill, presented at Parliament on July 20, 2022, gives the Bank of England the power to limit the reach of the Financial Conduct Authority in regulating payments systems using digital settlement assets or providers of digital settlement asset services if such actions would contribute to financial instability and have adverse impacts on businesses in the U.K.
Zahawi took over the reins of the U.K. Treasury after former Chancellor Rishi Sunak, who was open to digital assets with former City minister John Glen, resigned after repeated clashes with former Prime Minister Boris Johnson on tax and spending. Zahawi’s first tasks will be reducing taxes paid by Britons and addressing the cost-of-living crisis.
Sunak had lobbied for the U.K. to become a “crypto hub,” going so far as to commission the Royal Mint to create a non-fungible token to represent the U.K.’s push into crypto assets. Consequently, his resignations left question marks about how the U.K.’s foray into digital assets would proceed.
This bill is part of the answer.
Nuts and bolts
The new bill defines digital settlement asset service providers(DSA) as those involved in payment services involving digital assets as a settlement layer or those who safeguard the settlement assets and any associated cryptographic keys. The Treasury reserves the right to designate a DSA as a recognized service provider, provided the Bank of England does not wholly operate the DSA. In doing so, the Treasury must take care not to make designations that could compromise the financial stability of the U.K. The Treasury must also carefully consider the value of the services provided by the DSA and its relationship to payment systems using digital assets as settlement vehicles.
It clarifies digital settlement asset exchange providers as those who exchange fiat for digital currency or vice versa.
The Bank of England reserves the right to request rules for the DSA’s operation, rules for any entities doing business with the DSA, notifications of any changes to rules, and that the DSA not change rules without approval from the BoE.
The Bank must issue a policy statement in consultation with the FCA regarding its oversight of payment systems using digital asset settlements and digital asset service providers.
UK treasury sought industry input
A meetings log for the Treasury, released on July 14, 2022, reveals that the department met with Binance, Paxos, Coinbase, Goldman Sachs, a16z, Kingsway Capital, and Circle early in 2022 to deliberate on crypto assets.
Following the collapse of the TerraUSD stablecoin in May 2022, the U.K. Treasury released a proposal to limit the effects of a stablecoin collapse.
The bill must pass through the House of Lords and Parliament to be ratified.
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