As an early mover on embracing fintech, the U.K. pioneered the use of sandbox regulatory development for startups. It was an approach that sought to find common ground between entrepreneurs and regulators.
Now the British government is trying to do the same with crypto, and while the vote of confidence feels belated the policy’s support for stablecoins may be a bold move. On April 4, the U.K. Treasury recognized stablecoins as a “valid form of payment” as part of its plan to make Britain a global hub for crypto asset technology and investment.
The government will also explore measures to bolster “the competitiveness of the U.K. tax system” regarding digital assets. The Royal Mint will even create an NFT to symbolize its commitment to fostering a positive business climate for crypto assets. And officials will study the legal status of decentralized autonomous organizations.
The flurry of positive gestures toward crypto comes as regulators are struggling to strike a balance between supporting DeFi innovation and protecting consumers and the financial system from new risks. Last month, the Biden Administration unveiled a broad program to prepare a new oversight system for cryptocurrencies that won cautious praise from the industry.
This week the European Parliament, the legislative body in the 27-nation European Union, passed legislation that will require firms to perform know-your-customer checks on non-custodial wallets before transacting with them, and to report all digital asset transfers greater than €1,000 to anti-money laundering authorities. Two other EU bodies have to approve the measures before they become law.
The measures are designed to bring stablecoins as a means of payment within the regulatory perimeter of U.K. authorities, according to the announcement. It said the government will “creat[e] conditions for stablecoins issuers and service providers to operate and invest in the UK.”
In a speech at the Innovate Finance Global Summit on Apr. 4, John Glen, the economic secretary to the treasury, said regulating stablecoins will “enable consumers to use stablecoin payment services with confidence.”
The government said it will launch a “financial market infrastructure sandbox” to foster digital asset innovation, and the forthcoming creation of a “Cryptoasset Engagement Group” intended to open dialogue between lawmakers and the industry.
Under the model, dozens of entrepreneurs can get feedback from regulators on new business models. In return, officials get a better understanding of innovative technology and can warn companies if they might need approvals. The crypto sandbox will be set up during 2023 and managed by the Bank of England and the Financial Conduct Authority.
“We want to see the businesses of tomorrow — and the jobs they create — here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term,” Rishi Sunak, the U.K. Chancellor of the Exchequer, said in a statement.
Glen reinforced the message that the U.K. is rolling out the red carpet for crypto. “By making this country a hospitable place for crypto we can attract investment… generate swathes of new jobs… and create a wave of ground-breaking new products and services,” said Glen.
To drive home the point, he said the Royal Mint will issue an NFT by summer. “Our view is that crypto is going to impact many different sectors – including financial services. Change is going to be dynamic… which means that the way we regulate crypto-technologies needs to be dynamic too,” he added.