New proposals on the regulation of cryptoassets will see the UK Government move to adopt stablecoins as a recognised form of payment.

The Government hopes to make the UK a global hub for cryptoasset technology and investment.

Additional measures being proposed include changing the UK tax system to develop the cryptoasset market and enhance its competitiveness. Part of this involves reviewing how cryptoasset-backed loans are treated for tax purposes.

Measures will also include ‘CryptoSprint’ in May, where the Financial Conduct Authority will seek views directly from industry participants on key issues relating to the development of a future cryptoasset regime.

In addition, the Government has proposed legislating for a ‘financial market infrastructure sandbox’ to help firms innovate around crypto technology and establishing a Cryptoasset Engagement Group to work more closely with industry.

Also announced in the proposals is a plan for the Royal Mint to create an NFT. Set to launch this summer, it will be designed to serve as an emblem of the forward-looking approach the UK is determined to take.

Chancellor of the Exchequer, Rishi Sunak said: “It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.

“We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term.

“This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation.”

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Stablecoins bridge the gap between typical cryptocurrencies like Bitcoin and traditional fiat currencies.

Like other cryptoassets, they use digital tokens that can be traded easily, but are pegged to an underlying asset, such as the pound Sterling. This helps them maintain a stable price, making them more useful as a fiat currency.

According to the UK Government, with appropriate regulation, they could provide a more efficient means of payment and widen consumer choice.

As such, it intends to legislate to bring stablecoins – where used as a means of payment – within the payments regulatory perimeter, creating conditions for stablecoins issuers and service providers to operate and invest in the UK.

Economic Secretary to the Treasury John Glen also announced that the UK will proactively explore how Distributed Ledger Technology (DLT) can be used in the UK financial markets. This has the power to share and synchronize data in a decentralised manner, potentially achieving greater efficiency, transparency and resilience.

The government further confirmed that it will initiate a research programme to explore the feasibility and potential benefits of using DLT for sovereign debt instruments.

The government will consult on wider regulation of the cryptoasset sector later this year.

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