On April 4, 2022, the government of the United Kingdom announced its plans to introduce legislation that would recognize stablecoins as a valid form of payment with the aim of making the country a “global hub for cryptoasset technology and investment.” Stablecoins are cryptoassets that are tied to a traditional fiat currency to help it maintain a stable value. The government has stated that if these assets are appropriately regulated, this could “provide a more effective means of payment and widen consumer choice.”
The announcement is the result of a yearlong consultation, where the government sought public views on its regulatory approach to cryptoassets, stablecoins, and distributed ledger technology (DLT). The proposed legislation would amend the existing electronic and money payments laws to bring stablecoins, when used as payment, within the current regulations, which would create “conditions for stablecoin issuers and service providers to operate and invest in the UK.” The government intends that the new legislation will create a flexible code that can be updated when required.
The measures also include the creation of a Financial Market Infrastructure Sandbox that would help firms experiment and innovate with the infrastructure services of these markets. The government hopes that firms will use the sandbox to test DLT, which would allow data to be synchronized and shared in a decentralized manner and “enable [companies] to test new technologies that could transform financial markets by delivering greater efficiency, improved liquidity, enhanced transparency, and greater security.” In addition to these measures, the U.K. is conducting research on the feasibility of using DLT for sovereign debt instruments.
The U.K. is currently Europe’s largest financial technology hub, second only worldwide to the United States. To further promote the U.K. as a hub for cryptoasset activities, the government is also planning to conduct a public consultation on the regulation of cryptoassets. It is also considering how to tax these assets, particularly staking and decentralized finance (defi) loans, to ensure that the U.K. is competitive in attracting investment, and has commissioned the Royal Mint to create a nonfungible token this summer.