November 6, 2023 – The Financial Conduct Authority (FCA) and the Bank of England have taken a significant step towards the establishment of a regulatory framework for stablecoins in the United Kingdom. Today, they have opened the floor for industry feedback on their proposed regulatory approach, which could have far-reaching implications for the digital currency landscape.
Stablecoins, which are digital tokens designed to maintain a stable value in relation to national currencies, have been increasingly in focus as they gain prominence as both a means of payment and a store of value. The Bank of England’s proposal specifically targets payment systems that may use stablecoins at a systemic scale within the UK’s financial ecosystem.
The UK government has outlined that the regulatory oversight would encompass the activities of issuance and custody of fiat-backed stablecoins, regardless of their utility, ensuring that they are subject to strict governance whether used for payments or other purposes.
The proposed regulatory landscape is expected to bring fiat-backed stablecoins under the joint remit of the Bank of England, the FCA, and the Payment Systems Regulator (PSR). The collective efforts of these bodies aim to minimize the potential for customer harm and to address the conduct, prudential, and financial stability risks associated with the use of stablecoins.
A key aspect of the proposed regulations, as outlined by the FCA, includes defining clear requirements for the backing assets of fiat-backed stablecoins. This will include measures for redemption rights, capital requirements, and the statutory trust that must hold the fiat-backed stablecoins. These rules are designed to provide a safety net for consumers and to ensure the integrity of the financial system.
The authorities have set a deadline of February 6, 2024, for market participants and interested parties to submit their feedback on the proposed regulatory approach. This period of consultation is indicative of the UK’s careful and considered approach to integrating new financial technologies with the traditional financial system.
The Bank of England and the FCA’s forward-looking stance underscores the UK’s commitment to becoming a global leader in the cryptocurrency space while ensuring that its financial system remains robust and secure.