The UK government has introduced the new Financial Services and Markets Bill, signaling the next step in the country’s efforts to regulate digital assets. But what does this mean for payments?
One of the key implications of the bill is the reported intention to explore alternative technologies for digital financial services infrastructure, such as distributed ledger technology (DLT), which potentially paves the way for wider adoption. wide of crypto payments.
Originally, crypto was not intended to be an investment vehicle, but a secure and censorship-resistant alternative to government-issued tenders. However, despite huge price appreciation, confidence in the asset class has weakened periodically since its inception due to crashes, scandals, scams and “crypto winters”.
Stablecoins have emerged in recent years, in part as a solution to the problem of repeated loss of confidence in cryptocurrencies. But recent events show that despite the theoretical price stability that stablecoins are supposed to offer, they don’t always live up to their name.
This Bill will hopefully help restore trust in digital assets in the UK, by establishing a reasonable regulatory framework for crypto-asset service providers and token issuers, especially stablecoin issuers. . This could usher in a “stable spring” in which these tokens flourish into the spendable supply they have enormous potential to become.
The Bill, although still in its early stages, is a good next step and should see the UK move quickly towards implementing a digital financial services infrastructure. In addition, the government announced in April its intention to maintain the UK’s position as a global financial hub. This bill is part of the package, but more importantly, it publicizes the government’s recognition that crypto adoption is necessary in its efforts to maintain a dominant position in the financial world.
The immediate changes that will result from the bill will not necessarily be obvious to consumers carrying out everyday transactions. The changes will mostly be felt behind the scenes. New systems based on distributed ledger technology will be explored, which could lead to significant improvements in the infrastructure on which payments are executed.
Blockchain-based payments can eliminate many intermediaries involved in traditional payment rails – banks, card schemes and other payment processors – so the new infrastructure has the potential to increase efficiency, reduce costs and enable instant settlement, both domestic and cross-border. border.
The bill will also attempt to rebalance the innovation/regulation scale. This is currently biased against innovation to some extent due to the conservatism and lack of resources of regulators, rather than the content of the regulation itself. For example, the FCA’s approach to crypto providers is arguably still quite frosty. Its money laundering registration process can be too long and onerous, preventing businesses from reaching their potential.
The FCA has begun to address its lack of resources by considering hiring an additional 500 staff who will process business registration and licensing applications. But there is still much to do to support innovation.
The bill is an encouraging update from the Treasury, but the balance will not be fully resolved until a change in attitude has filtered down to regulators. If the Treasury can deliver on what it promised, we can expect to see a shift in the FCA in the coming years that will bring crypto payments through the metaphorical shrubbery and into the sun.
We still need to make progress in restoring public trust in digital assets. Sound regulation and strong consumer protection are a good start, especially in the wake of multiple stock market crashes. It is expected that stablecoin issuers will be placed under the same regulatory framework as e-money institutions – a smart move, in my opinion.
If stablecoins are well-made – securely individually backed by the fiat currencies they represent – stablecoin issuers act as EMI institutions anyway. If we legislate issuers with adequate protection rules, we protect consumers.
We must also regulate to reduce the risk of contagion. If an issuer needs to sell a huge volume of assets to raise the funds needed for redemptions, we need to consider how this will affect the wider financial market.
The sooner the bill is passed, the sooner the market receives clarity on the regulatory position, which should bring more digital asset service providers to the fore. Ultimately, it will be these service providers that drive the shift to widespread adoption as a means of payment.
As an industry, we have to come to terms with the fact that new regulations may be needed to increase trust in digital assets and start a new season. Nonetheless, it is exciting to see that we are moving in the right direction and embracing crypto as part of the future.