The United Kingdom is taking steps to develop regulations that support the coexistence of cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs), with a coordinated approach between His Majesty’s Treasury, the Bank of England (BoE), and the Financial Conduct Authority (FCA). In an exclusive interview with Cointelegraph, Varun Paul, former head of Fintech at the BoE and now senior director for CBDCs and financial market infrastructure at Fireblocks, discussed the U.K.’s efforts to establish regulations that balance investor protection and financial stability while promoting the use of cryptocurrencies and stablecoins. The U.K. is catching up with the European Union’s Markets in Crypto-Assets Regulation (MiCA), which is considered the most advanced regulatory framework globally. Paul explained that the U.K. fell behind Europe initially due to the FCA’s decision not to regulate crypto, but now it is closing the gap. The U.K. Treasury published its final proposal in October 2023, outlining plans to regulate the sector and authorize companies offering cryptocurrency-related activities through the FCA. Paul sees these publications as an effort to position the U.K. on par with the EU and foster innovation to establish London as a Fintech and crypto hub. The U.K. benefits from its coordinated regulatory approach, as it does not have to coordinate rules between different states like the EU does. The collaboration between the Treasury, BoE, and FCA has facilitated the development of regulations that balance fostering innovation and ensuring financial stability. The FCA currently oversees the management and use of stablecoins and smaller crypto and Fintech operators, while larger operators fall under the BoE’s radar. Stablecoins play a crucial role in the cryptocurrency ecosystem, with Tether’s market capitalization recently surpassing $100 billion. Paul noted that dollar-backed stablecoins act as a gateway to the broader crypto ecosystem and will continue to be until other blockchain-based digital forms of money are available. The U.K.’s regulators are concerned about the transparency of Tether’s reserves for circulating USDT. The U.K. regime requires stablecoins to be redeemable at par and held in liquid assets. However, policymakers acknowledge the demand for cryptocurrencies and digital money to purchase them. Paul authored a white paper for Fireblocks that explores the potential of a smart contract-managed system that allows a central bank to issue a CBDC as a base asset for commercial bank tokenized deposits and stablecoins. The paper proposes a consistent set of money to protect and preserve the concept of uniformity. The specific use cases will ultimately determine the need for stablecoins and CBDCs. Crypto-natives may prefer using USDT, while older generations may opt for centralized digital currencies issued by trusted financial institutions. The U.K.’s government aims to pass legislation regulating stablecoins and cryptocurrency staking by the end of 2024.
Former fintech lead at the Bank of England states that stablecoins and CBDCs will be permitted to coexist under new UK regulations.