The (un)regulated world of cryptocurrency: UK Government to recognise "stablecoins"

30 May 2022

Since December 2021, UK organisations have been providing welcome safeguards for consumers dabbling in the unregulated world of cryptocurrency (as to which see our previous note). However, the UK Government has now gone a step further. John Glen MP, the Economic Secretary to the Treasury, has confirmed that the UK Government will be legislating to bring certain stablecoins into the UK payments framework (the New Legislation). In the words of Mr Glen, “[w]e wanted, in the first instance, to focus on areas of immediate potential and concern in the crypto sphere – hence our work on stablecoins”.

"Stablecoins" are cryptocurrencies with a value pegged to a reserve asset (such as a fiat currency), commodity or financial instrument. These forms of cryptoasset therefore aim to provide an alternative to the high volatility of the most popular cryptocurrencies (such as Bitcoin). The intention of the New Legislation is to bring stablecoins within the regulatory perimeter of the Financial Conduct Authority. Where stablecoins are used as a means of payment, issuers will be required to hold (for example) equal reserves of pounds sterling for the tokens issued.  The hope is that this will increase confidence in this alternative form of currency and, in turn, facilitate growth and expansion.

Time will tell as to whether, in Mr Glen’s words, the new legislation will meet the UK Government’s ambition of “deliver[ing] a world-leading regulatory regime for stablecoins”but this is certainly a step in the right direction. With such moves, England is undeniably becoming a key jurisdiction for those navigating the crypto sphere, as evidenced by the English Courts’ prominence in deciding a host of seminal cryptocurrency cases to date.[1]  It is therefore no surprise that Mr Glen explicitly referred to “English law” and “[England’s] world-leading legal services and courts” when revealing plans to make Britain a global hub for cryptoasset technology and investment.

[1] See: (i) AA v Persons Unknown [2019] EWHC 3556 (cryptoassets, such as Bitcoin, constitute property capable of being the subject of a proprietary injunction); (ii) Ltd and another v Persons Unknown Category A and others [2021] EWHC 2254 (Comm) (cryptoassets are a ‘chose in action’); (iii) Wang v Derby [2021] EWHC 3054 (Comm) (cryptoassets can be held on trust like any other property, albeit they were not found to be held on trust in this particular case) and (iv) Tulip Trading v Bitcoin Association BSV and others [2022] EWHC 2 (Ch) (cryptoassets (absent an acceptable mechanism to address price volatility) cannot be used as security for costs in litigation and crypto network owners or developers do not owe tortious or fiduciary duties to bitcoin users).