The regulation being prepared by the UK government is particularly targeting stablecoins. Their rapid growth and nature worry the monetary authorities, as they could be used to destabilize the financial system and evade sanctions on Russia.
The person in charge of announcing the new regulatory regime would be the British Finance Minister, Rishi Sunak, according to four sources familiar with the matter revealed to the American network CNBC.
So far the details of the new regulatory plan are unknown. The sources, who spoke on condition of anonymity, 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 to cryptocurrency trading.
Treasury officials are willing to coordinate actions with the main financial companies in the sector. The idea is to better understand the complexity of the stablecoin market, whose value is derived from other existing fiat currencies, for example the US dollar, the yen or even the pound.
Exponential growth of stablecoins
Among the companies that the ministerial department has summoned to discuss this matter is Gemini. The enabled exchange has its own stablecoin called the Gemini dollar, pegged to the US dollar.
The growth of stablecoins in recent years has been extraordinary, just like the rest of cryptocurrencies. These digital assets have grown not only in number but also in supply of currency. Tether, the world’s largest stablecoin, has risen from $4 billion two years ago to more than $80 billion today.
This exponential growth and rapid adoption has raised concerns from UK and global regulators. The main concern is that they are not sufficiently backed in fiat currency to cover the number of tokens issued.
On the Flipside
Another source of concern is stablecoins being used in criminal activities such as money laundering. Likewise, they fear a possible exposure of the traditional financial system to bitcoin and other cryptos. Governments in Europe and the United States, 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 to limit risks 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.”
These measures, which the British Treasury will announce in the coming weeks, will be approved after US President Joe Biden will issue the executive order to regulate cryptocurrencies in coordination with all US 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 to propose a clear regulatory framework for cryptocurrencies. But, with the new rules on the way to be approved, the country could be left without cryptocurrency trading.
The Financial Conduct Authority (FCA) issued an ultimatum to several dozen companies in the sector to register before the end of the month. If they don’t they could be shut down, The Financial Times reported.
A “high number” of crypto companies would be failing to comply with the standards required to prevent money laundering. So far, only 33 companies linked to cryptocurrency trading have been able to register.
Meanwhile, close to 80% of the companies in the sector that the regulator submitted for evaluation have been rejected or forced to withdraw their applications for registration. Last year the FCA investigated some 300 companies and this year the pressure has increased.
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