Invezz.com - The UK government, under Prime Minister Keir Starmer, has confirmed plans to move forward with comprehensive cryptocurrency regulations after delays caused by the July general elections.
With a fast-growing market and increasing interest in digital assets, the new regulations aim to address key gaps in oversight.
According to a Bloomberg report, economic Secretary Tulip Siddiq announced that stablecoins, digital currencies pegged to fiat money, will not fall under the existing Payment Services Act.
Instead, they will be included in a fresh regulatory framework, set to be drafted in early 2025.
This move places the UK on a divergent path from the European Union, which implemented its own cryptocurrency regulations earlier this year.
The UK’s approach is seen as a critical step to support its domestic crypto industry while ensuring financial stability and consumer protection.
Why the UK is crafting specific regulations for stablecoins
Stablecoins, which are increasingly used for payments and remittances, represent a unique challenge for regulators.
Unlike traditional cryptocurrencies like Bitcoin, stablecoins maintain a fixed value by being backed by reserves of fiat currency or other assets.
According to Siddiq, regulating these digital assets separately is more logical given their payment-centric role in the financial system.
While existing laws such as the Payment Services Act provide some oversight, they are inadequate for handling the complexities of stablecoins.
The forthcoming legislation is expected to cover licensing requirements, reserve backing, and operational standards, ensuring that issuers comply with consumer protection and financial stability norms.
EU’s head start with crypto regulations
The European Union has already implemented its Markets in Crypto-Assets (MiCA) regulations, providing a detailed framework to govern the crypto ecosystem.
MiCA focuses on consumer protections, financial stability, and anti-money laundering measures.
Along with the EU, countries like France, Switzerland, and Liechtenstein have also introduced specific laws for cryptocurrency.
These nations have gained an edge in attracting crypto businesses, thanks to clear regulatory guidance.
The UK’s delayed approach has caused some concerns within its crypto industry, which has seen other markets gain ground.
The government appears committed to leveraging its financial hub status to create regulations that foster innovation without compromising on oversight.
The rise of the UK crypto market
Despite regulatory delays, the UK has seen significant growth in its cryptocurrency market.
Around 2.5 million adults in the country, or 5% of the population, currently own digital assets.
The market size has surged to $170 billion, with trading volumes averaging $8.5 billion.
Venture capital investment has also played a key role in driving the sector’s expansion.
In 2022 alone, over $1.9 billion was invested in UK-based crypto and blockchain startups, indicating strong institutional interest in the sector.
The government’s decision to develop Central Bank Digital Currency (CBDC), commonly referred to as the “digital pound,” further highlights the importance of crypto in the UK’s financial strategy.
The Bank of England is currently in the design phase of the project, consulting with industry stakeholders to determine its feasibility and framework.
Challenges and opportunities for the UK
The lack of a clear regulatory framework has led some companies to expand operations to jurisdictions with more established laws.
This regulatory uncertainty risks undermining the UK’s ability to attract global crypto firms.
However, by prioritising comprehensive legislation, the government hopes to restore its competitive edge.
The upcoming regulations are likely to balance innovation with oversight, addressing issues such as market manipulation, cybersecurity risks, and investor protection.
While aligning with global standards, the UK aims to tailor its approach to its unique financial ecosystem.