U.K’s Financial Regulator To Consider Terra Collapse While Establishing Rules For Digital Assets

• On Friday, the finance ministry and the financial regulator of the UK announced that they will consider the collapse of Terra while establishing rules for digital assets, reported Bloomberg.

• A spokesperson at the Treasury pointed out that the need for appropriate regulation to help diminish financial stability risks and market integrity has emerged due to the turmoil in the crypto market last week.

• The U.K declared in March that it intends to regulate stablecoins and will work on a new crypto regulatory package. However, the government in its consultation recommended that the stablecoins need not be regulated.

This Friday Bloomberg reported that the Finance Ministry and the financial regulator of the UK will be evaluating the Terra meltdown at the time of creating new rules for crypto assets. 

As per the latest reports, the executive director of markets at the United Kingdom’s Financial Conduct Authority, or FCA, Sarah Pritchard stated that while establishing rules for the sector in 2022, the regulator will take into account the recent volatility in the crypto markets.

Terra’s UST algorithmic stable coin declined by 23% on May 13, while the LUNA Token, developed to prevent volatility of the UST algorithmic stablecoin, slumped as low as 96% at one point. An algorithmic stable coin refers to a stable coin that is pegged by algorithms and not by any collateral. On the contrary, the smart contract or the token’s programming, can boost supply in case of a price decrease or decrease supply in case of a price increase.

A spokesperson at the Treasury highlighted that due to the chaos in the crypto market, the need for appropriate regulation to help diminish financial stability risks and market integrity has surfaced.

While developing its legislative approach, the government will continue working with the regulators to deal with these risks, added the spokesperson.

The U.K made a statement in March, saying it intends to regulate stablecoins and will work on a new crypto regulatory package. The government in its consultation recommended against regulating stable coins.

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Ritika Sharma

With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.