The U.K. Treasury has unveiled its proposed digital asset legislation a day before members of Parliament plan to begin debate on the measures.
According to a copy of the legislation published online, existing rules for banking and payment systems will be modified or extended to cover digital assets. The proposed regulations are part of a 335-page financial services and markets bill aimed at strengthening the U.K. financial systems following the country’s exit from the European Union.
In the bill, cryptocurrencies are referred to as “digital settlement assets,” (DSAs), meaning “a digital representation of value or rights.” The rules will largely apply to stablecoins – cryptocurrencies whose prices are pegged to another asset, such as the U.S. dollar, along with other digital assets used for payments or settlements. The definition of DSAs laid out in the file also include digital assets used for payments that aren’t “cryptographically secured.”
The rules come on the heels of a turbulent few months for crypto markets that saw a number of prominent crypto companies collapse and around $2 trillion leave the industry. The regulation also follows a promise from the U.K. government to turn the nation into a crypto hub before a series of cabinet resignations threatened to put regulatory plans on hold.
A Treasury consultation published in May hinted at bringing stablecoins under the U.K. payments regulation. Before his resignation in early July, John Glen, a minister of state at the Treasury, said that bringing stablecoins under the payments system will “enable consumers to use stablecoin payment services with confidence.”
The DSA regulations, organized under Schedule 6 in the new bill, propose amendments to the U.K. Banking Act 2009 that establishes the central bank’s oversight of payment systems. It also looks to extend a section of the existing Financial Services (Banking Reform) Act 2013 to payment systems involving DSAs.
The rules look to apply amendments to the banking act via “DSA service providers,” which include digital asset issuers, exchange platforms, wallet providers as well as any person that “sets rules, standards, or conditions of access or participation in relation to the payment system.”
According to the document, the Treasury retains the power to make and modify the regulations presented in the file as it considers appropriate. It also says that the Treasury must consult U.K.’s Financial Conduct Authority (FCA), the Bank of England and other applicable payments regulatory bodies before making regulations laid out in Schedule 6.
The Treasury could target a DSA service provider for regulatory action within the U.K. using what it called a “recognition order” if the services provided (or disruptions in providing services) are likely to threaten financial stability or have “serious consequences for business or other interests” throughout the country.
The bill, which was presented to parliament on Wednesday, is set to go through the first round of debates on Thursday.
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