Britain’s Chancellor of the Exchequer Rishi Sunak leaves the 11 Downing Street, in London, on March 23, 2022.
Daniel Leal | AFP | Getty Images
LONDON — The U.K. government will soon reveal plans to regulate the cryptocurrency market, focusing on a fast-growing type of token known as stablecoins, according to four industry sources familiar with the matter.
British Finance Minister Rishi Sunak is expected to make an announcement in the coming weeks about a new regulatory regime for crypto, the sources told CNBC, preferring to remain anonymous as the information hasn’t yet been made public.
The Treasury declined to comment when asked about the plans by CNBC.
Details of the plans are still being finalized, however sources who spoke to CNBC say they are likely to be favorable to the industry, providing legal clarity for a sector that has so far been mostly lacking in regulation.
According to the sources, Treasury officials have shown a willingness to understand the complexities of the crypto market and so-called stablecoins, digital assets that derive their value from existing currencies like the U.S. dollar.
The department has been in discussions with a number of firms and trade groups. That includes the Winklevoss brothers’ crypto exchange Gemini, one of the sources said. Gemini issues its own stablecoin called the Gemini dollar, which is pegged to the U.S. dollar.
Stablecoins have seen exponential growth in terms of usage over the past few years, in tandem with rising interest in cryptocurrencies more broadly. Tether, the world’s largest stablecoin, now has a total circulating supply of more than $80 billion — up from about $4 billion two years ago.
But those tokens have also caused concern for regulators, who worry they may not be fully backed by an equivalent amount of reserves, and are being used for money laundering and other illicit activities.
Meanwhile, regulators are worried about possible exposure of the financial system to bitcoin and other digital currencies, as well as their potential use for evading sanctions imposed on Russia amid its invasion of Ukraine.
Financial stability risks
The Bank of England on Thursday called for policymakers to expand regulatory frameworks to limit the risks posed by crypto to financial stability.
BOE Deputy Governor Sam Woods wrote a letter to several bank CEOs saying there has been “increased interest” from banks and investment firms in “entering various crypto markets.”
The Treasury’s move is being viewed as a response to President Joe Biden’s executive order calling for coordination from different U.S. federal agencies on regulating crypto, the sources said. Several industry insiders have bemoaned the lack of similar action from the U.K.
A number of companies, including Revolut, Blockchain.com and Copper could be forced to wind down their crypto operations in the U.K. this week if they fail to make it onto the Financial Conduct Authority’s cryptoasset register in time for a Mar. 31 deadline.
The FCA said a “high number” of crypto businesses aren’t meeting the required anti-money laundering standards. Just 33 companies have made it onto the register. More than 80% firms assessed by the regulator have either withdrawn their applications or been rejected.