The United Kingdom government has unveiled updated plans to regulate fiat-backed stablecoins, with a focus on their use within the country’s payment infrastructure. This new document, released on October 30, outlines the government’s intentions to introduce specific legislation to Parliament in 2024, transferring the oversight of fiat-backed stablecoins to the Financial Conduct Authority (FCA).
The key elements of this regulatory framework include designating local companies as “arrangers of payment,” a role that necessitates FCA authorization and responsibility for ensuring overseas stablecoins adhere to local standards.
However, it’s important to note that non-fiat-backed stablecoins, which encompass algorithmic stablecoins, will not be permitted within regulated payment chains. While the document doesn’t impose a direct ban, it specifies that these transactions will remain unregulated and subject to the same requirements as unbacked crypto assets.
In the case of standard stablecoins, the FCA will have the authority to require issuers to maintain all reserve funds within a statutory trust. The specific terms of this trust, including redemption obligations in the event of the issuer’s failure, will be detailed in the FCA’s rules. If a UK stablecoin issuer faces insolvency, they will be subject to procedures outlined in the Insolvency Act of 1986.
The regulatory framework is underpinned by the Financial Services and Markets Act (FSMA) of 2023, which received approval in the House of Lords in June 2023. The Treasury’s document consistently references this legislation as the foundation for the powers granted to the Treasury, Bank of England, and FCA to regulate the broader cryptocurrency and stablecoin space. It is within the framework of the FSMA 2023 that the UK government intends to exert its regulatory authority, focusing on the management and oversight of these evolving digital financial assets.