UK Treasury Drafts New Crypto Asset Rules, Stablecoin Regulation Incoming

• The U.K. Treasury has published draft crypto asset rules.
• The proposed regime would require the Financial Conduct Authority (FCA) to approve crypto exchanges and stablecoin issuers.
• The FCA is expected to impose reserve requirements on stablecoin issuers like Tether and Circle.

The U.K. Treasury has published draft crypto asset rules for different types of crypto assets, including stablecoins.

Compared to the EU, the U.K. has taken a more piecemeal approach to crypto regulation. However, with the Treasury’s latest update, a more comprehensive regulatory framework is finally in the works.

Crypto Regulation in the U.K.

The Treasury initially proposed creating a regulatory regime for crypto assets in October 2023, and has now fleshed out its plans in a policy note that outlines how different assets will be classified.

Following the global pattern of crypto regulation, specific regulated activities will include operating a crypto exchange and issuing stablecoins.

“Firms around the world have long been trying to anticipate what this new legislation would say in order to plan their U.K. strategies,” observed Hannah Meakin, a partner at law firm Norton Rose Fulbright.

“It is now clearer that authorized firms will not also have to be registered under the Money Laundering Regulations, but they will have to notify the FCA and, of course, they will still have to comply with [anti-money laundering] requirements,” she stated in comments shared with CCN.

New Rules for Stablecoin Issuers

The Treasury’s proposed new crypto regime will significantly reshape how global stablecoin issuers like Tether and Circle operate in the U.K. market.

Under the new rules, issuing “qualifying stablecoins” in the U.K. will require authorization from the Financial Conduct Authority (FCA).

The FCA will gain authority to impose client asset rules on fiat reserves, treating them similarly to client money under existing financial regulations​.

Implications for Tether

In the EU, Tether’s USDT has been delisted from major crypto exchanges as a result of the Markets in Crypto-Assets Regulation (MiCA).

MiCA mandates that any company issuing a stablecoin in the EU must be a licensed electronic money institution, which Tether is not. This has led exchanges to remove USDT to comply with MiCA’s restrictions.

Now, unless Tether is able to meet the FCA’s reserve requirements, the Treasury’s proposed new legislation could lead to a similar situation in the U.K.