Issue link: https://digital.shearman.com/i/1479657
U.K. Regulation of Cryptoassets 34 In December 2021, the Bank of England announced plans to discuss a global approach to regulating cryptoassets with other members of the Financial Stability Board—a body that unites international central banks (including in Japan, America, Europe and Australia). This mirrors calls of other regulators for a consistent, global approach to the regulation of cryptoassets. Sarah Breeden, executive director for financial strategy and risk at the Bank of England said the Bank faced "challenges" in finding data on cryptocurrency holdings by institutional investors and international co-operation was required to establish the sale of investments by big holders. She went on to say that moves by banks to offer cryptocurrency trading and custody services to clients meant that global regulators needed to design rules to protect the financial system. Need for Global Approach to Regulation The current distinction between regulated and unregulated digital assets, according to the FCA, is that: • regulated tokens are: (i) security tokens and (ii) e-money tokens; and • unregulated tokens are: any tokens that are not security tokens or e-money tokens, for example, (i) utility tokens and (ii) exchange tokens (like Bitcoin, Litecoin), used as a means of exchange or for investment. Extending the regulatory perimeter to stablecoins : Under the newly published FSMB, all stablecoins used for payment will become regulated in the U.K., including those that reference fiat currencies (whether a single currency or based on a basket of currencies). It is proposed that regulation will apply to the following if they are established and providing services in the U.K.: stablecoin issuers, wallet providers and custodians. Consumer protection will be provided for by a statutory legal claim against the issuer or third party facing the consumer. The U.K. Regulatory Perimeter for Digital Assets The U.K. has special regimes that apply to certain regulated firms when they are failing or failed, such as the bank resolvability and resolution regime, the investment firm SAR, the FMI SAR and the payment and e-money SAR. These regimes override many aspects of the usual U.K. insolvency regime, and their main aims are to ensure financial stability (by ensuring continuity of service) and consumer protection (by ensuring return of funds / assets). Special Insolvency Regimes A consultation published by HMT on May 31, 2022 proposes to implement a modified FMI SAR to address the failure of systemic DSA firms, including stablecoin firms. The amended FMI SAR will require a firm's services to continue ahead of the interests of its creditors and provide the Bank of England with powers over the administrators and the ability to direct which objectives take precedence in an administration. In addition to the objective of continuity of service, it will also provide an additional objective covering the return or transfer of funds and custody assets (such as private keys). Proposed SAR for Systemic DSA Firms Note: The information in this section is a selective and non-exhaustive summary of existing regulation and regulatory proposals / initiatives in the U.K. Cryptoassets & Insolvency