Written by Ciara Davies

HM Treasury has published a combined consultation paper and call for evidence on the regulatory approach to cryptoassets and stablecoins (cryptocurrencies that are backed by one or more reserve assets).

This represents the first stage in HM Treasury’s consultative process on the broader regulatory approach to cryptoassets and stablecoins. The intention is for the UK to have a regulatory framework that is able to harness the benefits of new technology, support innovation and competition and mitigate risks to consumers and financial stability.

An incremental and phased approach to regulatory changes is recommended, with sensitivity to risks posed and new market developments. Objectives and principles would be set by the government and HM Treasury, with detailed rules set by the regulators. The current division of UK regulator responsibilities would remain, as far as possible.

The focus of the consultation paper is on establishing a sound regulatory environment for stablecoins, where it is judged by HM Treasury that the risks and opportunities are most urgent. It proposes introducing a regulatory regime for “stable tokens”, which could be used as a means of payment, covering firms issuing stable tokens and firms providing services relating to them, either directly or indirectly, to consumers.

Unregulated tokens and associated activities for primarily speculative investment purposes, could initially remain outside the regulatory perimeter for conduct and prudential purposes. Eventually HM Treasury will consider the case for bringing a broader set of cryptoasset market actors and tokens within the scope of regulation.

The deadline for comments on the consultation paper is 21 March 2021.