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UK consults crypto community on regulations post Brexit

Bitcoin next to the British flag

The consultation will determine the extent to which the UK’s approach to crypto regulation should align with those in other jurisdictions 

In an open consultation announcement yesterday, the United Kingdom’s finance policy department asked for the crypto community’s input on prospective regulations regarding the country’s laws on stablecoins and crypto assets.

With New Year’s Eve marking the end of the freedom to work and live between the United Kingdom and the European Union as a result of the Brexit, UK is now debating how much the nation’s crypto rules should align with those in other jurisdictions.

The initiative was described as the “first stage in the government’s consultative process with industry and stakeholders on the broader regulatory approach”. It was accompanied by an invitation for stakeholders and firms engaged in crypto asset activities to weigh in on a series of proposals for crypto regulation in the country.

One of the proposals suggests requiring all firms marketing stablecoins to the people of the United Kingdom to be registered in the United Kingdom.

Explaining the proposal, the consultation said, “Due to the digital, decentralised and cross-border nature of stable tokens, the government and UK authorities are considering whether firms actively marketing to UK consumers should be required to have a UK establishment and be authorised in the UK”.

With a specific focus on stablecoins, a central proposal seeks to fill the gap formed by the lack of a formal legal definition of stablecoins in the United Kingdom. However, the Treasury is not keen on tying the new definition of stable coins to its underlying blockchain technology.

The government and other Cryptoassets Taskforce authorities recognise that while crypto assets are typically underpinned by DLT, stable tokens could be designed using other types of technology. This classification is therefore agnostic on the technology underpinning its use (e.g., whether it relies on DLT or not),” the proposal stated.

Later in the document, the Treasury also excludes algorithmic stablecoins from the definition as a stablecoin in order to reserve the category for tokens pegged to a reference asset, whether fiat or Gold.

The Treasury identifies a range of potential areas around stablecoins that must be regulated including who is allowed to operate stablecoins and how they will have to maintain and report reserves.

Stating the intention of these proposed regulations to continue supporting innovation and new technologies while mitigating risks for consumers and protecting financial stability, the announcement invites responses to the consultation by 21 March, 2020.

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