The UK Government’s Plans to Regulate Fiat-Backed Stablecoins
The United Kingdom government has released an update on its plans to regulate fiat-backed stablecoins. The aim of the document, published on October 30th, is to enable and oversee the use of fiat-backed stablecoins in payment systems within the UK.
The Treasury intends to introduce specific legislation to parliament in 2024, which will bring the regulation of fiat-backed stablecoins under the jurisdiction of the Financial Conduct Authority (FCA).
Regulation for Local Companies
Under these plans, local companies will be designated as “arrangers of payment” and authorized by the FCA. They will have the responsibility of ensuring that overseas stablecoins meet local standards.
Non-fiat-backed stablecoins, including algorithmic stablecoins, will not be permitted in regulated payment systems. Although there is no direct ban imposed, the document states that these transactions will remain unregulated and subject to the same requirements as unbacked crypto assets.
Requirements for Standard Stablecoins
The FCA will be granted authority to require stablecoin issuers to hold all reserve funds in a statutory trust. The terms of this trust, including redemption obligations in case of a firm’s failure, will be outlined in the FCA’s rules. In the event of insolvency, UK stablecoin issuers will undergo procedures under the Insolvency Act 1986.
Regulating Crypto under FCMA 2023
The central framework for all types of cryptocurrencies, known as the Financial Services and Markets Act (FCMA) 2023, was passed in June 2023. The Treasury’s document refers to this bill multiple times as it grants powers to regulate crypto and stablecoins to the Treasury, the Bank of England, and the FCA.
Hot Take: UK Government Advances Regulation for Fiat-Backed Stablecoins
The UK government has taken a step forward in its efforts to regulate fiat-backed stablecoins. With plans to introduce legislation in 2024, the government aims to bring these stablecoins under the jurisdiction of the Financial Conduct Authority. This move will ensure that local companies authorized by the FCA are responsible for verifying overseas stablecoins against local standards. Additionally, non-fiat-backed stablecoins will not be permitted in regulated payment systems. The FCA will have the authority to demand that stablecoin issuers hold reserve funds in a statutory trust, with terms outlined in their rules. By advancing regulation, the UK is taking proactive steps to govern stablecoin usage within its borders.
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