On November 6, the United Kingdom unveiled a series of documents addressing the regulation of stablecoins. The Financial Conduct Authority (FCA) and the Bank of England (BOE) jointly released a discussion paper, while the BOE's Prudential Regulation Authority (PRA) issued a letter to depository institution CEOs. Furthermore, the BOE published a "cross-regulatory roadmap" to harmonize these initiatives.
Prior to this, on October 30, HM Treasury laid the groundwork for forthcoming announcements by providing a brief overview of the regulatory plans. The FCA's paper delves into the same subject with greater depth.
The FCA emphasizes that stablecoin regulation serves as the initial phase of a broader framework for regulating crypto-assets. Their discussion paper delineates potential applications of stablecoins, encompassing both retail and wholesale usage. It covers aspects such as auditing, reporting, support for tokens owned by issuers, and the safeguarding of asset custodians' independence. The paper emphasizes the principle of "same risks, same regulatory consequences" and advocates using the existing customer asset framework as the foundation for rules governing redemption, custody, as well as comprehensive management arrangements, systems, and control records. It also addresses operational resilience, financial crime frameworks, and more.
The FCA is contemplating the adaptation of current prudential requirements for regulated stablecoin issuers and custodians within the current regulatory structure, with a view to extending these adaptations to other types of crypto-assets in due course.
The Bank of England's paper focuses on the utilization of sterling-based retail stablecoins within systemic payment systems. It considers transfer functionalities, prerequisites for wallet service providers, and other related services, partially overlapping with the FCA's discussions about stablecoin issuers and deposit protection. The Bank of England indicated its reliance on the FCA for custodian regulation but did not rule out the possibility of instituting its own requirements when necessary. It cited potential regulatory complexities associated with anti-money laundering and know-your-customer requirements for non-custodial wallets and off-chain transactions.
In a letter, the Bank of England's PRA underscores the importance of maintaining a clear distinction between "electronic money or regulated stablecoins" and other types of deposits. They stress the potential for customer confusion, especially among retail clients, if entities accepting deposits offer e-currencies or regulated stablecoins under the same brand as traditional deposits. The PRA suggests that innovative endeavors by depository institutions should reserve unique branding for launch events. Entities seeking to accept deposits are urged to engage with the PRA promptly during the process. The letter serves as a reminder that innovation in the deposit sector must align with established rules and requirements.
