New UK Regulation To Embrace Crypto And DeFi
Stablecoins could be integrated into UK payment systems by 2024.
The UK government has published final rules for crypto businesses, with the aim of becoming a hub for the fast-growing industry. New legislation on stablecoins is expected to come into force next year, and critically, the government will not ban DeFi.
The UK: An Obvious Choice But A Poor Track Record
The UK has long been known as a global financial center, though Brexit has somewhat undermined its status. The financial sector still accounts for around 8% of GDP and provides 2.3 million jobs. As such, it might be expected that the country would be the natural choice for crypto startups, but the reality is that it has been anything but friendly to these new businesses.
There may be several reasons for this, but a large part of it has been down to banks' reluctance to engage with crypto services. In the early years of crypto, numerous UK-based exchanges were put out of business when banks closed their accounts without notice or adequate explanation. The government has been criticized for the lengthy delays that have hampered crypto adoption and entrepreneurship in the UK.
While the wheels of government grind slowly, they have in this instance done a good job, and critics have responded positively to the final draft.
Legislation for fiat-backed stablecoins will be introduced early in 2024, which could see the stablecoins integrated within payment systems. While other types of stablecoins, like algo coins, are not immediate in the scope of the legislation, they will likely follow in due course. Activity in the crypto sector will largely fall under the authority of the Financial Conduct Authority (FCA).
Critically, the government has stated that it has no intention of banning DeFi, as some regulators in other jurisdictions have threatened, saying that it is too soon to regulate decentralized financial products.
Financial Transactions Or Gambling?
The new rules have generally been welcomed by the crypto community, despite the long delays taken in reaching this stage. Previously, the UK's House of Commons' Treasury Committee had recommended that crypto activity should not be regulated like other financial services, since this could give users the sense that they were mainstream products and provide a false sense of security. Instead, the committee suggested that crypto should be treated like gambling.
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