The Government wants to make the UK a global cryptoasset technology hub to boost investment and employment in future financial services in the UK. On the 4 April 2022, it announced the first steps of its plan to make this a reality - the core of which is to regulate ‘stablecoins’ (cryptoassets pegged to national currencies or commodities such as oil) so that they can become a recognised form of payment in the UK economy.
Publishing its response to the “Cryptoasset and Stablecoin consultation” carried out last year, the Government has confirmed that it will press ahead with legislation to regulate stablecoins (by updating existing legislation that covers electronic money) although it plans to ensure that the legislation will remain sufficiently flexible to accommodate new cryptoassets as they emerge.
Regulatory infrastructure
The Government also sees significant scope for distributed ledger technology (blockchain) to be used in future financial market infrastructure and by 2023 is planning to set up a sandbox to help businesses develop them. The aim is that as businesses use the sandbox it will help regulators understand what legislative changes are needed to facilitate use of the technology and manage any risks that they may create.
Other measures to boost the cryptoasset markets will include setting up a Cryptoasset Engagement Group to work more closely with the industry as well as working with the Royal Mint to create a Non-Fungible Token (NFT) as a signal of the UK’s support for developing cryptoassets.
Tax incentives
As part of the announcements that Government committed to exploring ways to make the UK tax system more competitive to encourage development of the cryptoasset market. In particular, the government are looking at the tax treatment of Decentralised-Finance (De-Fi) loans and also a welcome consultation on extending the scope of the Investment Manager Exemption to cryptoassets which should simplify the current need to structure such transactions offshore.
The Economic Secretary to the Treasury has stated in his speech to the Innovate Finance Global Summit that he doesn’t “think the tax code will need major surgery to make it work more easily for crypto” and as such it is highly likely that any changes to the tax code will be targeted measured aimed at stablecoins rather than the wider crypto ecosystem.
With a widening emphasis on crypto-technologies one of the key first steps is likely to be moves to support cryptoassets through improving the UK’s R&D tax reliefs: there is an ongoing project to overhaul of the UK’s R&D regime and we should hear more on that in the summer.
Read the Government’s response to the Cryptoasset and Stablecoin consultation.
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