Save content
Have you found this content useful? Use the button above to save it to your profile.
Digital money on weighing scales
istock_z_wei_AW

Government prepares to regulate stablecoins for payments

by

The Treasury has outlined plans to explore how cryptoassets could help consumers make payments more efficiently – a move that could bring widespread change to the tax and accounting world.

5th Apr 2022
Save content
Have you found this content useful? Use the button above to save it to your profile.

Current rules governing electronic payments will be amended to bring stablecoins under the remit of regulators, the government announced yesterday.

Stablecoins are a type of cryptoasset designed to be pegged to fiat currencies such as the dollar, or even commodities such as gold. This avoids the volatility of digital tokens such as bitcoin, which makes them off-putting to many in commerce.

All stablecoins that reference a fiat currency should be regulated, paving their way for use in the UK as a recognised form of payment, Economic Secretary of the Treasury John Glen told the Innovate Finance Global Summit in London. He said the approach will “ensure convertibility into fiat currency, at par and on-demand”.

The government plans to legislate to bring stablecoins into the payments regulatory space, with the intention of encouraging stablecoin issuers and service providers to operate and invest in the UK, creating a “crypto-friendly tech hub”.

Like many other cryptoassets, stablecoins are growing rapidly in popularity, with the total market cap of USDT – a stablecoin that has its value pegged to the US Dollar 1:1 – increasing from $6.3bn to $49.2bn over the past 12 months. 

Joe David, founder of leading cryptocurrency accounting firm Myna, called the government’s outlook on classifying stablecoins as a form of payment a positive one. “As crypto accountants, we have been advocating for this change for a while as we believe it can release cash for some industries, including for those within the accounting realm,” he said.

“It will naturally mean there will be an impact on tax rulings, bringing big changes to accounting as a whole,” continued David. “However, the devil’s in the detail, so the only thing we can do is hold on tight and see how the crypto journey goes.”

The news comes parallel to the Bank of England’s exploration of a potential retail central bank digital currency (CBDC) – a form of electronic money issued by the bank that households and businesses could use to make payments. In a recent report, the House of Lords Economic Affairs Committee branded this as a “solution looking for a problem” that risks introducing state surveillance of people's spending choices.

Wider crypto consultation

Glen also confirmed that the government will seek to turn Britain into a “global cryptoassets hub”, announcing a number of measures aimed at making the UK an attractive place to start and scale crypto companies.

The government will consult on wider regulation of the cryptoasset sector later this year, taking into account factors such as the sector’s energy consumption.

“If crypto-technologies are going to be a big part of the future, then we – the UK – want to be in, and in on the ground floor,” said Glen. “If we act now… we can lead the way.”

Glen acknowledged concerns around various aspects of cryptoasset usage, including criminal misuse and the environmental impact of a number of leading digital tokens. However, he argued that through regulation and standards the UK could reap the benefits of the opportunities presented by the growth of cryptoassets.

Glen said the government was not going to lower its standards, but instead maintain a “technologically neutral approach” to cryptoassets and development a world-best crypto ecosystem.

“Having robust and effective regulation won’t hinder innovation, it’ll actually boost it,” he said. “By giving people and businesses the confidence they need to think and invest for the long term.

“We shouldn’t be thinking of regulation as a static, rigid thing,” continued Glen. “Instead, we should be thinking in terms of regulatory ‘code’ — like computer code — which we refine and rewrite when we need to.”

‘No major surgery’ needed 

Glen also confirmed that the implications of crypto on tax will be studied. “On balance, we don’t think the tax code will need major surgery to make it work more easily for crypto,” he commented.

The government will also review its stance on the tax treatment of Decentralised Finance or defi loans – where holders of cryptoassets lend them out for a return. HMRC’s latest instalment of crypto-guidance caused controversy among crypto-friendly accountants for stifling innovation and being unworkable in any practical sense – a move welcomed by Myna’s Joe David as “an incredible shift”.

Glen also announced that the Law Commission will consider the legal status of decentralised autonomous organisations that use blockchain.

Royal Mint to create NFT

In a parallel announcement with more symbolic than practical relevance to the accounting profession, Rishi Sunak said he had asked the Royal Mint to create a non-fungible token (NFT) to be issued by the summer. 

An NFT is a unique digital asset stored on a blockchain, the same decentralised ledger of transactions used to buy and sell cryptocurrencies such as bitcoin.

The Chancellor did not specify details of the NFT such as what image it will be, how many will be created or whether it will be used to generate funds for the Exchequer. A Treasury spokesperson said more details would be available soon.

Join HMRC's cryptoasset lead plus special guests at 10am on Friday 29 April for an interactive cryptoasset webinar. See here for further details.

Replies (8)

Please login or register to join the discussion.

avatar
By JustAnotherUser
06th Apr 2022 08:22

Great to see a firm such as Myna leading the way (however thier SEO game needs upping as the 'UKs leading crypto accountant' they only appear 8th on Google)

The UK goverments claim Britain into a “global cryptoassets hub” doesnt match that of the UK banks, who have slowly been banning customers from transferring funds to exchanges... the following have some or all blocks on exchange transfers

Natwest, TSB, LLoyds, HSBC, Santander, Metro, Nationwide, Virgin.

Royal Mint to create a non-fungible token (NFT) to be issued by the summer. - Great news, most likley to have poor execution, but will get cryto in the news more, lets hope its got some form of utility and not just a jpeg. Would like to see something along the lines of the NFT partnering with the national trust where the NFT offers additional benefits.

Thanks (1)
avatar
By Carl London
06th Apr 2022 21:45

It will be interesting to see how many "stable" coins are Ponzi schemes in the next big crypto crash.

Thanks (0)
Replying to Carl London:
avatar
By Ben10000
07th Apr 2022 10:06

Tether looking particularly dodgy. Amazing that its taken this long for people to wake up to the inescapable fact that you can neither print wealth nor "virtually" generate it..

So were going to back fiat currency with virtual nothing.. wonderful, what could go wrong...

Thanks (0)
Replying to Carl London:
avatar
By SafeAsHouses
07th Apr 2022 14:01

None of them meet anywhere close to the definition of a ponzi so it's unhelpful to throw terms like that around.

Tether is almost certainly under-reserved (due to the undoubted mis-valuing of some of the collateral such as junk bonds commerical paper etc) so would be vulnerable to a "bank run".

USDC is fully backed by cash or cash equivalents and is owned by two publically listed companies so unlikely to be any shenangins. Plus it's passed Kevin O'Leary's due dilligence which will have been extensive.

Those are the main ones. There are others that are algorithmically pegged to USD. These pegs have survived 50% crashes in the crypto market so have performed well under stress tests albeit past performance isnt a guarantee of future performance etc.

But ultimately that's what these proposed regulations are for - to protect consumers and indeed the wider financial system as stablecoins are here to stay and will likely become systemically important in the long term.

Thanks (1)
Replying to SafeAsHouses:
avatar
By JustAnotherUser
07th Apr 2022 14:31

-clapping emoji-

100% agreed, (more) regulation is welcome and needed, I suspect if it wasnt for covid the UK Gov would have done this earlier.

Anyone who reads articles like this and thinks, scam, ponzi, bubble and dimisses the web3 movement will be difficult to convince otherwise.

Thanks (0)
avatar
By jamiea4f
07th Apr 2022 11:06

Maybe concentrate first on dealing with the currency we already have, and how much of it is in our national debt rather than crypto crap? The only use I’ve ever seen for this “currency” is from hackers asking to be paid in cryptos to stop them showing something dodgy…

Thanks (0)
By mydoghasfleas
07th Apr 2022 14:55

"Wider" regulation of the crypto asset sector implies there is some. Is there? Who will regulate it? Surely not the FCA, which the All Party Parliamentary Group was looking into last year. It strikes me the FCA lacks the ability to regulate an on-off button, let alone a financial sector.

I need to get into the handcart manufacturing business, as everyone believes you need one to get where we are going, whether we like it or not.

Thanks (0)
avatar
By moneymanager
05th May 2022 23:44

"stablecoin" (good name?) linked to a fiat currency, could anyone please name a fiat currency that is stable?

Thanks (0)