The United Kingdom government has released a comprehensive update on its intentions to regulate fiat-backed stablecoins within its borders. The document outlines a roadmap to facilitate and oversee the use of fiat-backed stablecoins in the UK’s payment infrastructure.
Regulatory legislation scheduled for 2024
In a significant development, the document reveals that His Majesty’s Treasury intends to introduce dedicated legislation to the UK Parliament in 2024. This legislation will empower the Financial Conduct Authority (FCA) to regulate fiat-backed stablecoins, marking a pivotal shift in the oversight of digital currencies.
The Treasury’s proposal also entails local companies serving as “arrangers of payment” authorized by the FCA. These authorized entities will be responsible for ensuring that overseas stablecoins adhere to local standards. This approach aims to promote accountability and adherence to regulatory norms among stablecoin operators.
UK exclusion of non-fiat-backed stablecoins
The document explicitly excludes non-fiat-backed stablecoins, including algorithmic variants, from being integrated into regulated payment chains. While a direct ban is not imposed, these transactions will remain unregulated. HM Treasury’s stance is that non-fiat-backed stablecoins should be subject to the same requirements as unbacked cryptoassets.
For standard stablecoins, the FCA will be granted authority to demand that issuers hold all reserve funds in a statutory trust. The terms of this trust will be outlined in the FCA’s rules, encompassing redemption obligations in case of the issuer’s insolvency. In such a scenario, UK-based stablecoin issuers will undergo procedures defined under the Insolvency Act of 1986.
The foundation for regulating crypto assets and stablecoins, the Financial Services and Markets Act (FCMA) 2023, was successfully passed in the upper chamber of the British Parliament in June 2023. The Treasury’s document consistently references this bill, officially naming it the FCMA 2023. Under this legislation, the Treasury, the Bank of England, and the FCA gain the authority to regulate cryptocurrencies and, more specifically, stablecoins.
This latest announcement represents a major step forward in the UK’s efforts to create a robust regulatory framework for digital currencies. By focusing on fiat-backed stablecoins, the government aims to foster trust and confidence in these digital payment instruments while simultaneously mitigating risks associated with their usage.
Industry reaction
Industry experts have expressed a range of opinions regarding the Treasury’s update. Some believe that the proposed regulations strike a balance between ensuring consumer protection and fostering innovation in the cryptocurrency space. However, concerns have been raised regarding the exclusion of non-fiat-backed stablecoins, with critics arguing that a more inclusive approach could spur innovation.
The UK’s regulatory approach to stablecoins is likely to have international ramifications, especially for stablecoin issuers operating across borders. As global regulatory bodies grapple with how to oversee these digital assets, the UK’s comprehensive framework may serve as a model for other nations seeking to establish clear guidelines for their use.
