By Liza Tetley on Thursday 7 April 2022
The Treasury’s package signals a new era of legitimacy for digital assets in the UK but has been met with scepticism by some.
News this week of a package of reforms and initiatives in the digital asset space by the UK government came as a surprise to many – particularly as the cost-of-living crisis continues to rage and the uncertainty around regulation of crypto companies continues to build.
The Treasury said on Monday that the UK is to launch a non-fungible token (NFT) in the summer, ‘stablecoins’ will be formally regulated, and the UK tax landscape will be made more crypto-friendly; all part of a drive to transform the UK into a leading “global hub for crypto assets”.
“This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation,” said chancellor Rishi Sunak in a statement.
Yet, the hardline stance that the FCA has adopted towards crypto firms, and simultaneous warnings by the Bank of England governor Andrew Bailey that cryptocurrencies represent the “new frontline” for scams, sends some mixed messages on the UK’s commitment to its foray into the crypto space.
AltFi takes a closer look at the government’s plans.
Why is the UK minting an NFT?
As a cryptographic token that serves as a digital certificate of ownership for a digital asset, NFTs were typically linked to artwork that existed, was owned, and traded in the digital space.
Yet the NFT marketplace has expanded in recent months, exploding into other practical applications, such as mobilising money for the Ukrainian humanitarian effort.
The auction of an NFT of a Ukrainian flag for $6.5m-worth of Ethereum, for example, with proceeds to be spent on humanitarian aid, represented the highest NFT sum ever recorded.
Oddly, the Treasury has not yet defined what ownership the Royal Mint-issued NFT will confer – fuelling industry rumours that it is being minted purely as an elaborate PR stunt.
It is possible that the Royal Mint’s NFT is just a collectible – similarly to other physical commemorative coins created by the Mint. The government’s statement that it is “an emblem of the forward-looking approach the UK is determined to take”, seems to also support the theory that this is nothing more than an emblematic move.
However, it may have more practical implications, potentially being used to help fund start-ups and projects across the UK.
This remains unconfirmed until the launch of the NFT in the summer – another bone of contention among some, given NFTs take little time to create. Yet this aside, crypto firms have welcomed the announcement based on what it signifies in terms of legitimising crypto assets in the UK.
“Directing the Royal Mint to create an NFT is a positive signal to the ecosystem, to be sure, but it is also an important step in the government’s building institutional knowledge of the subject of its regulation,” said Marco Santori, Kraken's chief legal officer.
What are stablecoins and how could they be used?
Stablecoins are a form of cryptoasset that are pegged to a fiat currency and are intended to maintain price stability.
They can therefore be used as a stable way for cryptocurrency traders to preserve the fiat value of their assets without having to cash out of the crypto market.
The Treasury believes that with appropriate regulation, they could provide a “more efficient means of payment and widen consumer choice”.
Plans are therefore to bring them under regulation, paving their way for use in the UK as a recognised form of payment and to encourage stablecoin issuers and service providers to operate and invest in the UK.
Contradictory on crypto?
Reform of the UK tax system to make it more crypto-friendly has certainly been welcomed by firms across the UK. Yet some have accused the FCA of acting out of alignment with the Treasury’s vision, given that large swathes of crypto companies are facing relocation from the UK having been excluded from the FCA’s temporary crypto register, which so far has only approved 33 players.
“Government policy is very disjointed and contradictory,” says Charlie Delingpole, founder and CEO of ComplyAdvantage. “In the same week that many very legitimate and established firms on the FCA temporary crypto asset register either withdrew from the UK or faced being banned, the government stated that it had the aspiration to become a global crypto capital.”
“The foundation of becoming a crypto capital is having a regulatory framework that doesn’t force out most legitimate firms that serve UK clients from overseas, as Wirex is doing from Croatia,” he adds.
Updating the tax and authorisation regimes is certainly complex and will take time, according to Delingpole.
“The fact that the deadline for authorisation has been revised three times now speaks to the complexity the FCA faces,” he says.
Other territories also remain way ahead in terms of crypto, which, according to Delingpole, could dint the government’s success in enticing crypto investment to the UK, particularly without a joined up approach between government and regulatory bodies.
“The UK faces a competitive international environment for crypto firms from jurisdictions such as Dubai,” he says.
The Treasury will also be proactively exploring the role that distributed ledger technology (DLT) can play within the UK financial system and has announced that the FCA will be holding a two day ‘CryptoSprint’ in May to get industry views on key issues relating to the crypto asset regime - so there are a lot of items on the agenda.