The UK has released proposals for a stablecoin framework along with broader industry regulations in a bid to position the country as an investment destination and to protect users.
In an October 30 release, the Treasury Department published a set of guidelines to regulate ‘fiat-backed stablecoins’ amid calls for global regulation following broader scrutiny of the market.
Recently, there have been calls made for the UK to issue an official statement regarding the use of stablecoins and incorporate these assets into the financial system to encourage cross-border payments.
According to the release, the new law will bring fiat-backed stablecoins under the purview of the Bank of England (BoE), Financial Conduct Authority (FCA), and Payment Systems Regulator (PSR) to create financial stability and risk regulatory overlap. .
“The government hopes that this phased approach will provide a level of choice and flexibility for companies wishing to undertake phase 1 activities as early adopters as well as companies whose business model is more focused on phase 2 activities only.”
Fiat-backed stablecoins in the financial system
According to the release, stablecoins will be regulated in various ways; of assets used in a chain and by organizing activities related to the issuance and storage of assets.
The use of stablecoins in payment chains will be regulated in the Payment Services Regulations (2017) which has a template for relevant institutions providing financial services.
At the time of publication, the FCA will take over the rules guiding firms as new asset disposal activities will be included in the Financial Services and Markets Act.
“This will allow the FCA to create regulations for companies carrying out these activities. Firms wishing to apply for authorization to undertake such issuance or custody activities will be subject to the FCA rules and guidance as usual for activities regulated by the FCA.”
The UK Treasury is seeking to bring foreign companies' operations in line with local standards as non-fiat-backed stablecoins are banned in regulated payment chains, although no outright ban has been implemented.
Stablecoin issuers will also be required by the FCA to maintain a reserve fund of assets as set out by the Commission's regulations with provisions for the application of the Insolvency Act 1986 in the event of a subsequent default.
More extensive regulation is on the horizon
This year, several policy observers praised the UK's efforts in crypto regulation in line with Rishi Sunak's vision to make the country a crypto hub by 2022.
British Finance Minister Andrew Griffith described the latest move as a step in the right direction after months of anticipation.
Last week, the UK released a response to a consultation paper and discussed the issues surrounding the digital pound and investor demand for wider regulation of stablecoins.
According to the paper, proper regulation will be established with fiat-backed stablecoins as phase 1 and algorithmic and other assets will emerge in the second phase.
