Rishi Sunak Government Announces Financial Sector Reforms, Teases Plans for Digital Pound

Rishi Sunak Government Announces Financial Sector Reforms, Teases Plans for Digital Pound

The UK is reforming its financial service sector to include crypto-related products. The government will launch a CBDC, regulate stablecoins as a mode of currency, expand corporate tax-breaks to include crypto assets, and also create a sandbox to test new financial service technologies.

On December 9th, Jeremy Hunt, the United Kingdom’s Chancellor of Exchequer, unveiled a set of reforms for the country’s financial service sector in a statement given to the Parliament. In the package announced by the Rishi Sunak government is a set of guidelines to replace the current European Union banking and financial markets laws that the country operates under with a smarter regulatory framework that is “agile, less costly and more responsive to emerging trends.” 

Some of the points addressed by the finance minister included topics related to the crypto industry. Hunt proposed plans to introduce a central bank issued digital currency (CBDC), create a regulatory perimeter for fiat-backed cryptocurrencies called stablecoins, launch a regulatory sandbox that will allow developers and authorities to test out new financial service technologies, and form a crypto tax break for investment managers. The reforms are all part of the country’s upcoming Financial Services and Markets (FSM) bill that was announced in early October with the intent of regulating the digital asset industry. 

Rishi Sunak Government Announces Financial Sector Reforms, Teases Plans for Digital Pound

The government is working with the Bank of England (BoE) to develop a Digital Pound for the retail sector that is expected to be finalised in the coming weeks. The Treasury department is preparing a consultation for expanding the Investment Manager Exemption – a tax break offered to foreign investors that use UK-based managers – to include crypto assets. The government plans to launch the Financial Market Infrastructure Sandbox early next year. 

Other reforms in the proposal included achieving sustainable development in investments to make the UK the “world’s premier financial centre for sustainable finance.” The Rishi Sunak administration is set to introduce its Green Finance Strategy that will incorporate Environmental, Social and Governance (ESG) ratings providers into money markets starting next year. 

“The government is ensuring that the financial system plays a major role in the delivery of the UK’s Net Zero target, and is acting to secure the UK as the best place in the world for responsible and sustainable investment,” read the proposal. 

Earlier this week, the Treasury proposed a few changes to crypto regulations in the FSM bill to give the Financial Conduct Authority (FCA), UK’s financial watchdog, more control over the crypto asset industry. This was largely influenced by the implosion of Bahamas-based cryptocurrency exchange FTX, who mismanaged customer funds worth $10 billion in November. 

The amendment will require crypto companies planning to operate in the country to pass the FCA’s anti-money laundering (AML) tests. The FCA also proposed limiting the number of crypto firms that will be allowed to promote their products in the country. This will see firms registered under the Financial Service and Markets Act of 2000 requiring their advertisements to be first approved by an FCA-authorised firm. With the proposal, the Treasury aims to bring the industry under close watch of the FCA. 

The government is also working on introducing regulations for non-fungible tokens (NFTs). Last month, members of the Digital, Culture, Media and Sport Committee (DCMS) opened a public consultation to make an assessment on NFTs before a review could be performed by the Treasury department. 

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