The UK government has issued an update outlining its intentions to regulate fiat stablecoins, focusing on their use within the country's payment systems. The document, published on October 30, outlines the government's plan to promote and regulate the use of fiat-backed stablecoins in the UK payment ecosystem.
One of the key elements of the update is the proposal to introduce specific legislation to the UK Parliament in 2024 that would place the regulation of fiat-backed stablecoins under the authority of the Financial Conduct Authority (FCA). This regulatory move aims to ensure that stablecoin issuers and operators adhere to the required standards and comply with financial regulations.
Moreover, the Treasury is considering a unique approach, which involves local companies obtaining authorization from the FCA to act as "payment arrangers." These payment arrangers would play a pivotal role in overseeing the compliance of overseas stablecoins with local regulations, further strengthening the regulatory framework.
In the document, it's made clear that non-fiat-backed stablecoins, including algorithmic stablecoins, will not be permitted on regulated payment chains. While the document does not introduce an outright ban, it states that these transactions will remain unregulated. Non-fiat-backed stablecoins would be subject to the same requirements as other unbacked crypto-assets, providing greater clarity and a level of regulatory consistency.
For standard stablecoins, the FCA will have the authority to require stablecoin issuers to establish a statutory trust in which they must deposit all reserves. The terms and specifics of this trust will be outlined in FCA rules, including redemption obligations in case the company faces insolvency. In such cases, UK stablecoin issuers would be subject to proceedings as outlined in the Insolvency Act 1986.
This regulatory update aligns with the Financial Services and Markets Act 2023 (FCMA 2023), a critical framework that covers various aspects of cryptocurrencies and stablecoins. Passed in June 2023 by the House of Lords, the upper house of the UK Parliament, the FCMA 2023 empowers the Treasury, Bank of England, and FCA to regulate cryptocurrencies and stablecoins, marking a significant step in the UK's regulatory approach to digital assets.
