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The UK will introduce new laws on stablecoins and cryptocurrencies by July
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On April 15, 2024, at the Innovative Finance Global Summit, the UK Economic Secretary, Bim Afolami, announced his intention to introduce new laws to regulate the issuance and use of stablecoins and cryptocurrencies in the country. This comprehensive regulatory framework is expected to be unveiled by July 2024 and will position the UK as a frontrunner in regulating the proliferating cryptocurrency sector.
The UK cryptocurrency industry is one of the fastest growing cryptocurrency markets globally, overtaking Germany and the United States after experiencing aggressive growth over the last decade. The popularity of cryptocurrencies in the country and their viability as legitimate assets has seen the country expand three million cryptocurrency users. It is estimated that these users have a combined asset of over $3.72 billion in cryptocurrencies. Furthermore, the UK cryptocurrency industry grossed around $1.9 billion in revenue in 2023 and is still expected to reach $2.53 billion in 2024.
This exponential growth and market penetration, as major businesses in the UK are increasingly adopting digital currencies, has fueled the need for regulation in the industry.
What to anticipate with the new cryptocurrency laws
Today, cryptocurrencies have impacted numerous industries, from becoming the newest currency facilitating transactions in online banking to the rush casino demo in online games. It is no surprise that the UK aims to promote a vibrant and secure crypto environment in the country by establishing clear operational rules in the world of cryptocurrencies.
To the Global Summit on Innovative Finance, Bim Afolami noted that the final proposals for the scheme have been put in place to ensure that the legislation is enacted as soon as possible. He added that numerous activities related to cryptocurrencies will fall within the regulatory perimeter for the first time. Some of the provisions under the crypto regulations include:
● Establishing licensing requirements for stablecoin issuers to mitigate concerns about potential financial instability of stablecoins, which are cryptocurrencies whose value is pegged to traditional assets or other cryptocurrencies.
● Providing clarity on the tax implications of staking, which is when cryptocurrency owners secure their assets to facilitate validation of a transaction on a blockchain network and ensure consumer protection.
● Employing tighter control over the sale and purchase of digital assets on cryptocurrency exchange platforms to prevent criminal activity within the crypto environment. These platforms will likely be subject to know-your-customer (KYC) and anti-money laundering (AML) protocols, just like traditional financial systems.
● Need for resilient security measures for custodial service providers as they store cryptocurrency holdings for paid users to safeguard user assets from cyber attacks and other threats.
The UK Economy Minister said the UK aims to attract businesses and investors to this fast-growing sector, while ensuring the country’s consumers are protected against financial risks and fraudulent activity.
The UK’s journey to legislation in the cryptocurrency ecosystem
According to UK Financial Conduct Authority, in 2019, only 42% of UK adults had heard of cryptocurrencies. In 2022, however, 91% of UK adults were aware of cryptocurrency. Additionally, in 2022, the UK government has expressed interest in regulating the cryptocurrency industry.
● Early 2022 – British Prime Minister Rishi Sunak revealed that the government intends for the UK financial system to support crypto institutions that intend to transform the UK into a major financial hub. He shared that the goal will be to support cryptocurrencies and businesses’ operations, investments, innovation and scalability.
● February 2023 – In response to the government’s agenda to make the UK a global financial centre, the UK’s Financial Conduct Authority (FCA), in partnership with the Bank of England (BoE), has launched consultations on the development of a regulatory framework for stablecoins. These consultations were informed by directives that the FCA would be responsible for regulating the country’s crypto environment. At the same time, the BoE would be tasked with overseeing the operations of stablecoin providers that could impact UK financial systems due to their size and market reach.
● July 2023 – The UK Law Commission has reviewed the nation’s cryptocurrency laws, introducing four important recommendations that would allow the country to recognize cryptocurrencies and stablecoins as regulated financial assets.
Twelve months after this historic move by the UK Law Commission, we expect a final regulatory framework for crypto companies and cryptocurrencies to be revealed. However, this may not be guaranteed due to the upcoming general elections, which are likely to take place in the second half of 2024.
The Labor Party is currently favored to win the election and has already expressed uncertainty over the regulation of cryptocurrencies. If the Labor Party takes power from the governing Conservative Party, the result could be delays or revisions to regulations before approval. If this were to happen, the UK cryptocurrency industry could suffer the same fate as the US cryptocurrency market, which is losing cryptocurrency users to other jurisdictions due to regulatory uncertainty in the country.
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