UK Closes Crypto Regulation Gap with EU through Collaborative Approach
Summary:
The UK keeps closing its regulatory gap with the European Union's Markets in Crypto-Assets (MiCA) by fostering a collaborative approach among the Treasury, Bank of England, and Financial Conduct Authority (FCA). Fireblocks' senior director and ex-head of Fintech at the Bank of England, Varun Paul, shared insights about UK's efforts towards implementing cryptocurrency-friendly regulations that balance financial stability and innovation. The Treasury's October 2023 proposal indicates these moves, and its officials anticipate various forms of digital money to coexist harmoniously, attended by legislation regulating stablecoins and crypto staking by 2024.
Collaboration among the Treasury, the Bank of England (BoE), and the Financial Conduct Authority (FCA) could pave the way for cryptocurrency-friendly regulations in the UK, enabling cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs) to coexist. Varun Paul, ex-head of Fintech at the BoE and current Fireblocks senior director for CBDCs and financial market infrastructure, spoke exclusively to Cointelegraph about UK efforts to create crypto-supportive regulations while ensuring investor safety and financial stability.
According to Paul, the UK is catching up to the European Union’s regulation framework, Markets in Crypto-Assets (MiCA), known for its advanced approach globally. He recalls a time when the FCA refrained from regulating cryptocurrency to avoid endorsing it, causing the UK to lag behind Europe, but he says the gap is closing quickly.
The Treasury’s final proposal that was released in October 2023 detailed plans to regulate the sector, stating that cryptocurrency-related businesses would need to gain FCA authorization. Paul sees the recent publications as attempts to match the EU's efforts and foster innovation, positioning London as a FinTech hub and cryptocurrency hotspot.
Paul emphasizes the importance of a collaborative approach to regulation, which he believes gives the UK an edge because it doesn't require coordination across various states like the EU does. The Treasury, BoE, and FCA's joint approach helped create a balanced rule set promoting innovation and financial stability. He points out that thanks to these three authorities' collaborative strategy, there is potential to create a more comprehensive rule set that accommodates stablecoins, permits tokenized deposits for banks, and facilitates CBDCs.
Paul refers to stablecoins as a vital component of the crypto ecosystem, with Tether’s USDT having recently exceeded a market capitalization of $100 billion. Dollar-backed stablecoins remain the primary access point to the broader cryptocurrency ecosystem until competing digital forms of currency pervade the market. According to Paul, European and British policymakers agree on the necessity for Euro and Sterling-denominated digital money.
UK regulators remain concerned about the transparency of Tether's reserves for circulating USDT, says Paul, but they also recognize the strong demand for cryptocurrencies and the digital currencies needed to purchase them. He stresses the importance of creating a regulatory framework that promotes safer digital assets backed by pounds rather than USDT alternatives in the UK.
Paul sees the potential for various forms of digital money — stablecoins, tokenized assets, and CBDCs — to coexist in harmony, each catering to different purposes and populations. His November 2023 white paper for Fireblocks envisages a smart contract-controlled system in which a central bank issues a CBDC as foundational asset for commercial bank tokenized deposits and stablecoins.
He discerns the preference for stablecoins over CBDCs among crypto-enthusiasts, while the traditionally less tech-savvy may opt for centralized digital currencies issued by well-established financial bodies. UK's Economic Secretary to the Treasury, Bim Afolami, recently hinted at upcoming legislation set for 2024, concerning the regulation of stablecoins and cryptocurrency staking.
Published At
3/6/2024 1:40:04 PM
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