I remember writing about the introduction of the Financial Services and Markets Bill in July 2022 and reflecting how the (then) Chancellor’s
Mansion House speech had claimed “it reinforces the UK’s position as a leading centre for technology as we safely adopt crypto assets” stressing a “vision to make the UK one of the most dynamic financial centres in the world.”
Fast forward three years, the Financial Services and Markets Act has been in force for two years and Rachel Reeves has just made another Mansion House Speech in which she emphasised growth, international competitiveness and asserted she “will drive forward
developments in blockchain technology… including tokenised securities and stablecoins…”
Is this another example of the enthusiastic language that is as much a part of the UK Chancellor’s annual speech as the ornate setting, or does it accurately signal the UK’s global leadership in digital finance?
What’s been happening in the rest of the world while we talk about our vision?
Stablecoin legislation was introduced in Japan in 2022, in Singapore and the EU in 2023, and Abu Dhabi in 2024. Most recently, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act is set to pave the way for US banks to issue stablecoins
and has led to real excitement about what it will mean for US growth, the FS industry and consumers. The Act includes a formal definition of a (fiat-pegged) “payment stablecoin” and addresses much of the ambiguity and confusion that has characterised the years
in which regulation in the US has been led by SEC enforcement.
Albeit with varying degrees of success, these examples demonstrate that regulatory reform connected to digital finance can offer clarity and certainty that protects consumers and encourages innovation. In many ways, it is extraordinary to hear a Labour government
adopting the myth of regulation as a barrier to innovation and growth, something I have long argued against. The government and regulators are faced with the challenge of balancing innovation and stability while safeguarding consumers and the wider financial
system, but that is an argument for effective regulation, not for less regulation.
Further clarity is required on stablecoin assets
One issue banks are asking the FCA for clarity on currently, is at what point a stablecoin becomes “systemic” as that is when oversight shifts to the Bank of England. UK Finance’s response to the FCA’s crypto prudential rules consultation emphasises the
need for more detail on how the two regulatory regimes interact and sufficient time to implement the BoE’s yet-to-be-published framework. There are also calls for guidance on anti-money laundering (AML) responsibilities, especially for custodians of stablecoin
backing assets.
Criticism that UK regulation ‘overestimates the risk and underestimates the opportunity’ of stablecoins may have something to do with the Chancellor’s push for regulators to consider growth and competitiveness rather than “excessive caution”.
In her speech the Chancellor referenced the ‘remit letters’ she had written to the FCA and the PRA last year and extended the call:
“Regulators in other sectors must take up the call I make this evening…
…not to bend to the temptation of excessive caution…
…but to boldly regulate for growth…
…in the service of prosperity for our whole country”.
Regulation that balances risk and encourages innovation is possible but it must be agile and principles-based. We have excellent examples here of good, pro-innovation regulation, not least regulatory sandboxes and the CMA9 order, now replicated in jurisdictions
around the world.
The Electronic Trade Documents Act is another sensible initiative I was closely involved with, legislation that does not mention blockchain technology but made key changes to the definition and capabilities of trade documents (such as bills of lading) that
were possessive in nature. The legal change is based on a UN template and allows the digitalisation of trade documents using what is described in the Statute as a ‘reliable system’.
Blockchain is one of the technologies that makes it possible to meet the criteria required to be a reliable system in that it can be distinguished from any copies, protected against unauthorised alteration, allowing no more than one person to exercise control
of the document at any one time. Getting this into statute at the pace we did was a significant UK achievement. That was just the start. Much more action is required to encourage adoption and the attendant economic, environmental and social benefits to be
realised.
What does the Mansion House speech mean for the future of stablecoin in the UK?
Back to the action set out in the Chancellor’s speech and her specific references to fintech and blockchain initiatives:
“And for fintech – where almost half of Europe’s Fintech’s are already based here in the UK…the PRA and FCA are launching a scale-up unit to support innovative firms to grow in the UK, including in our world-leading payments system.
The scale-up unit is a new initiative to help high-growth fintech firms transition from early-stage (often supported by regulatory sandboxes) to full-scale operations. This is especially important for payments firms, which face complex regulatory hurdles
as they grow. The goal is clearly to retain and grow fintechs in the UK.
I find myself echoing
the questions I asked ‘in these pages’ last year in response to the government’s National Payments Vision, regarding the implications for growth and whether the measures set out will create competition that drives both innovation and security and benefits
for us all?
The Chancellor also, of course, mentioned blockchain, tokenised securities and stablecoins,
“…and an ambitious design for a new digital gilt instrument…so that UK financial services can be at the forefront of digital asset innovation.”
Can we assume the Chancellor is backing blockchain as a foundational technology for the future of finance? Will we get the regulatory clarity around tokenised securities (traditional financial assets such as bonds or shares represented digitally on a blockchain)
and stablecoins (digital currencies pegged to stable assets like the pound or dollar) that will boost confidence in the same way GENIUS has in the US? The reference to digital gilts also signals a move to innovate and modernise government debt issuance and
settlement but again we are, so far, lacking in the detail.
I welcome the rhetoric and appreciate the importance of messaging but wonder how far it has really shifted perception, are we still a place that ‘overestimates risk and underestimates opportunity’? Is there the understanding that right sized regulation plots
the path we must take, to end forever the false and tediously recurring dichotomy that you can have innovation or regulation, never both.