The UK government has unveiled its updated plans to regulate fiat-backed stablecoins. In a document released on October 30, the UK’s Treasury outlined its intentions to facilitate and regulate the use of these stablecoins in payment systems across the country.
The update reveals that the Treasury aims to introduce specific legislation to parliament in 2024, which will bring fiat-backed stablecoins under the purview of the Financial Conduct Authority (FCA). In particular, the Treasury is considering making local companies that are “arrangers of payment” and authorized by the FCA responsible for ensuring that overseas stablecoins comply with UK standards.
Notably, non-fiat-backed stablecoins, including algorithmic stablecoins, will not be permitted in regulated payment chains. While the document doesn’t impose a direct ban on these types of stablecoins, it specifies that “these transactions will remain unregulated.” Additionally, the Treasury believes that non-fiat-backed stablecoins should be subject to the same requirements as unbacked crypto assets.
When it comes to standard stablecoins, the FCA will have the authority to require stablecoin issuers to hold all reserve funds in a statutory trust. The terms of this trust, including redemption obligations in the event of the firm’s failure, will be defined by the FCA’s rules. In such a scenario, UK stablecoin issuers would be subject to procedures under the Insolvency Act of 1986.
The central framework for all crypto regulation, the Financial Services and Markets Act, was passed in the House of Lords in June 2023. This act, referred to in the Treasury’s document as the FCMA 2023, provides the Treasury, the Bank of England, and the FCA with the necessary powers to regulate crypto assets, including stablecoins.
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