On 7 January, the UK Treasury published a consultation on its proposed approach to regulating stablecoins. https://www.gov.uk/government/consultations/uk-regulatory-approach-to-cryptoassets-and-stablecoins-consultation-and-call-for-evidence Although the title of the consultation includes “cryptoassets” – this is the just first stage in the consultative process for cryptoassets, which focuses on stablecoins referred to as “stable tokens”. The consultation closes on 21 March. For US readers, a “consultation” is the start of regulatory process, not unlike an “Advance Notice of Proposed Rulemaking” or “ANPR” in the US. The UK government sets out the supervisory perimeters, seeking input from the public, and leaving the detailed requirements to be designed by the regulators. Accordingly, the consultation discusses only general principles and the overall framework.Read More
By Kai Zhang, Special Counsel, London
Changes are coming to the UK payment services regulatory landscape post-Brexit (from 1 January 2021). However, certain Brexit-triggered changes have been put by the FCA on “standstill”, which lasts until 31 March 2022; i.e. during this standstill period, firms can effectively ignore the relevant changes and continue to comply with the current requirements.
We summarise here how the standstill applies to some of the key legislation. Note that this does not cover the changes themselves that have been made due to Brexit.Read More
On 19 December 2018, the UK tax authority, HM Revenue and Customs (“HMRC”), published a policy paper on the taxation of cryptoassets. The guidance is limited to HMRC’s view in relation to individuals holding cryptoassets and does not extend to tokens or assets held by businesses. The guidance confirms that HMRC does not consider cryptoassets to be currency or money for tax purposes and separates crypto assets into three categories of “tokens”: exchange tokens, utility tokens and security tokens. The guidance focuses on the taxation of “exchange tokens,” a term encompassing assets such as Bitcoin.Read More
The UK’s Financial Conduct Authority has launched its Green FinTech Challenge. This is aimed at firms developing green financial technology solutions that need specific regulatory support to bring their proposition to market. The Challenge is designed to support innovation and growth in the Green Finance sector as part of the UK government’s Green GB Week which started on 15 October 2018.
Firms that require specific regulatory support are invited to apply. The Challenge will provide support to a selection of firms developing innovative products and services to assist in the UK’s transition to a greener economy. It is open to start-ups, incumbents and technology providers.
The UK Cryptoassets Taskforce has recently published its final report. The Taskforce comprises HM Treasury, the Financial Conduct Authority and the Bank of England and was formed in March 2018.
While the use of cryptoassets for illicit activity remains low in the UK, the Taskforce concludes that these risks are increasing and the use of cryptoassets for money laundering is growing. The UK authorities will bring all relevant firms into anti-money laundering and counter-terrorist financing regulation. This action will go significantly beyond the requirements set out in the European Union Fifth Anti-Money Laundering Directive. The UK government will consult on its proposed actions and will legislate during 2019.
On 19 September, the UK House of Commons Treasury Committee published a highly critical report of the state of UK crypto-asset regulation. Crypto-assets themselves (i.e. those designed primarily as a means of payment / exchange) are not within the scope of UK Financial Conduct Authority (FCA) regulation. This is because crypto-assets generally will not meet the criteria to be considered a specified investment under the Regulated Activities Order (RAO), nor would they typically qualify as ‘funds’ or ‘e-money’ in the Payments Services Directive and the E-Money Regulation 2009.
Published on 19 July, the UK Law Commission’s 2017-2018 Annual Report includes a section dedicated to a research project into smart contracts. The Commission is a statutory independent body. Its aims include the conduct of research and consultations in order to make systematic recommendations for consideration by the UK Parliament. The Commission defines “smart contracts” as the technology which runs on blockchain and by which legal contracts may be executed automatically, at least in part. The body says there is a compelling case for a Law Commission scoping study to review the current English legal framework as it applies to smart contracts. The project’s purpose would be to ensure that English law is sufficiently certain and flexible to apply in a global, digital context and to highlight any topics which lack clarity or certainty. The body has started its initial research and its main work will begin in summer 2018.
The first meeting of the UK’s new Cryptoassets Taskforce took place on 21 May 2018. First announced in April 2018 by the Chancellor of the Exchequer as part of the UK government’s Fintech Sector Strategy, the Taskforce is a central part of the government and financial regulators’ efforts to understand and engage with the implications of new technologies in financial services. At the first meeting, the Taskforce agreed its objectives, which include:
- exploring the impact of cryptoassets;
- the potential benefits and challenges of the application of distributed ledger technology in financial services; and
- assessing what, if any, regulation is required in response.
The Bank of England, the UK’s central bank, is undertaking a Proof of Concept (PoC) to understand how a renewed Real Time Gross Settlement (RTGS) service could be capable of supporting settlement in systems operating on innovative payment technologies, such as those built on Distributed Ledger Technology (DLT). It is hoped that the service will deliver a stronger, more resilient, flexible and innovative sterling settlement system for the United Kingdom to respond to the changing payments landscape. The RTGS blueprint, published in May 2017, stated that the renewed service will offer a diverse and flexible range of settlement models, to enable existing and emerging payment infrastructures to access central bank money.
In a recent speech, one of England’s most senior judges explored, in the context of the digital revolution, the culture of and relationship between the UK financial services sector, the UK legal profession, and the judiciary in a changing technological environment. Sir Geoffrey Vos, Chancellor of the High Court, gave the Banking Standards Board Lecture on 20 March.