The United Kingdom has recently unveiled proposals for a stablecoin framework, along with broader industry regulations, in an effort to position the country as an attractive investment destination while also ensuring user protection. The guidelines for regulating ‘fiat-backed stablecoins’ were published by His Majesty’s Treasury on October 30 in response to calls for global regulation and increased scrutiny in the markets.
Regulating Fiat-Backed Stablecoins
The new regulations aim to bring fiat-backed stablecoins under the purview of key regulatory bodies such as the Bank of England (BoE), the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR). This multi-agency approach is intended to promote financial stability and mitigate the risk of regulatory overlaps.
Under the proposed framework, stablecoins will be subject to regulation in different ways. This includes regulating the assets used in their chains and overseeing the issuance and custody of these assets. Payment chains involving stablecoins will be brought under the Payment Service Regulation (2017), which provides a framework for financial institutions offering related services.
Regarding issuance, the FCA will be responsible for establishing rules for firms engaged in the release of new assets. The activities surrounding issuance and custody will fall under the Financial Services and Markets Act. The UK Treasury emphasizes that firms seeking authorization for these activities must adhere to FCA rules and guidance, as is standard for FCA-regulated activities.
In line with local standards and regulations, the UK Treasury aims to ensure that foreign companies operating in the country comply with the same requirements. While there is no direct ban on non-fiat-backed stablecoins in regulated payment chains, they are prohibited. Stablecoin issuers will also be required by the FCA to hold reserve funds of assets, as specified by the Commission’s rules. Additionally, provisions will be made under the Insolvency Act 1986 to address potential failures.
The UK’s Crypto Regulatory Efforts
The United Kingdom’s crypto regulatory efforts have received praise from policy watchers, aligning with the vision of Rishi Sunak to establish the country as a crypto hub by 2022. Treasury Minister Andrew Griffith has described the latest proposals as a positive step forward after months of anticipation.
The UK recently released responses to a consultation paper addressing issues related to a digital pound and investor demand for wider stablecoin regulation. The paper outlines a phased approach to regulation, with a focus on fiat-backed stablecoins in the first phase, followed by algorithmic and other assets in the second phase.
