The United Kingdom has released proposals for a stablecoin framework alongside wider industry regulations in a bid to position the country as an investment destination and to protect users.
In an Oct 30 release, His Majesty’s Treasury published a set of guidelines for regulating ‘fiat-backed stablecoins’ amid calls for global regulation following wider scrutiny in the markets.
In recent times, calls have been made for the UK to release an official statement on stablecoin usage and incorporate these assets into the financial system to encourage cross-border payments.
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Per the release, the new laws will bring fiat-backed stablecoins under the purview of the Bank of England (BoE), the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR) to create financial stability and risk of regulatory overlaps.
“The government expects that this phased approach will provide a degree of optionality and flexibility for firms wishing to undertake phase 1 activities as early adopters as well as those with business models more focused on phase 2-only activities.”
Fiat-backed stablecoins in the financial system
According to the release, stablecoins will be regulated in ways; from the assets used in chains and by regulating the activity relating to issuance and custody of the assets.
The use of stablecoin in payment chains will be brought under the Payment Service Regulation (2017) which has a template for related institutions providing financial services.
On issuance, the FCA will take charge of rules guiding firms as the activities around releasing new assets will be included in the Financial Services and Markets Act.
“This will enable the FCA to make rules for firms conducting these activities. Firms wishing to apply for authorization to conduct either of those issuance or custody activities will be subject to FCA rules and guidance as is usual for FCA-regulated activities.”
The UK Treasury seeks to make foreign companies’ operations in line with local standards as non-fiat-backed stablecoins are prohibited from regulated payment chains, although no direct ban was made.
Stablecoin issuers will also be required by the FCA to hold reserve funds of assets as set out by the Commission’s rules with a provision for an application of the Insolvency Act 1986 in case of a subsequent failure.
Wider regulations on the horizon
This year, several policy watchers have lauded the UK’s efforts at crypto regulations in line with the vision of Rishi Sunak to make the country a crypto hub in 2022.
UK’s Treasury Minister Andrew Griffith described the latest move as a step in the right direction following months of anticipation.
Last week, the UK released responses to the consultation paper and addressed issues surrounding a digital pound and investor demand for wider stablecoin regulation.
According to the paper, proper regulation will be set out with fiat-backed stablecoins as phase 1 and algorithmic and other assets coming up in the second phase.