Britain’s Chancellor of the Exchequer Rishi Sunak leaves 11 Downing Street in London on March 23, 2022.
Daniel Leal | AFP | Getty Images
LONDON – The UK government is set to announce plans to regulate the cryptocurrency market soon, focusing on a fast-growing type of token known as stablecoins, according to four industry sources familiar with the matter.
UK Finance Minister Rishi Sunak is expected to make an announcement about a new regulatory regime for crypto in the coming weeks, the sources told CNBC, preferring to remain anonymous as the information has not yet been released.
The Treasury Department declined to comment on CNBC’s plans.
Details of the plans are still being worked out, but sources speaking to CNBC say they will likely be positive for the industry and bring legal clarity to a sector that has so far largely lacked regulation.
According to the sources, Treasury Department officials have shown a willingness to understand the complexities of the crypto market and so-called stablecoins, digital assets that derive their value from existing currencies like the US dollar.
The department has held discussions with a number of firms and trade groups. This includes the Winklevoss brothers’ crypto exchange Gemini, one of the sources said. Gemini issues its own stablecoin called Gemini Dollar, which is pegged to the US Dollar.
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Stablecoins have seen exponential growth in terms of usage over the last few years, along with increasing interest in cryptocurrencies more broadly. Tether, the world’s largest stablecoin, now has more than $80 billion in total circulation – up from about $4 billion two years ago.
But these tokens have also raised concerns among regulators, who fear they may not be fully backed by an adequate amount of reserves and may be used for money laundering and other illicit activities.
Meanwhile, regulators are concerned about the financial system’s potential exposure to Bitcoin and other digital currencies, and their potential use to circumvent sanctions imposed on Russia in the wake of its invasion of Ukraine.
Risks to financial stability
The Bank of England on Thursday urged policymakers to expand the regulatory framework to limit the risks that crypto poses to financial stability.
BOE Deputy Governor Sam Woods wrote a letter to several bank CEOs saying there has been “increased interest” from banks and investment firms in “entering various crypto markets.”
The Treasury Department’s move is seen as a response to President Joe Biden’s executive order requiring coordination between various U.S. federal agencies to regulate crypto, the sources said. Several industry insiders have lamented the lack of similar action from the UK
A number of companies, including Revolut, Blockchain.com and Copper, could be forced to shut down their crypto operations in the UK this week if they don’t make it onto the Financial Conduct Authority’s cryptoasset register by March 31.
The FCA said a “high number” of crypto companies fail to meet required anti-money laundering standards. Only 33 companies made it onto the register. More than 80% of the companies assessed by the regulator either withdrew their applications or were rejected.