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UK rule makers set out roadmap for regulating stablecoins

UK rule makers set out roadmap for regulating stablecoins

The Bank of England and the Financial Conduct Authority have pushed out proposals for the regulation of stablecoins, billing them as an efffective way to make payments faster and cheaper for consumers and retailers.

The UK Treasury Treasury is currently considering making changes to the payments legislation to enable retail payments for goods and services to be made using fiat-backed stablecoins. This includes an option the Treasury are exploring to allow certain stablecoins which are issued outside of the UK to be used for payments.

The FCA’s Discussion Paper explores the proposed regulation around the issuance and custody of fiat-backed stablecoins under the Financial Services and Markets Act 2000 and the use of these stablecoins as a means of payments under the Payment Services Regulations.

Sheldon Mills, executive director, consumers and competition, FCA, says: “Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely. Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives."

The Bank’s Discussion Paper outlines how the Bank of England would regulate operators of systemic payment systems using stablecoins - payments systems which, if widely used for retail payments in the UK, could otherwise pose risks to financial stability. The Bank would also regulate other entities providing services to these payment systems, such as stablecoin issuers and wallet providers, where they could otherwise pose financial stability risks.

Sarah Breeden, deputy governor for financial stability, Bank of England, comments: “Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place. Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.”

The Prudential Regulatory Authority (PRA) has also published a Dear CEO letter, on how it expects deposit-takers to address the risks that arise from issuing multiple forms of digital money and countering contagion risks. The letter also sets out the PRA’s broader expectations for banks regarding their use of digital money for retail or wholesale innovations, in areas such as operational resilience, anti-money laundering, counter-terrorist financing, and liquidity and funding risks.

The FCA and the Bank welcome feedback from the public and industry by 6 February 2024.

Comments: (1)

Jeremy Light
Jeremy Light - Fourdotzero - London 06 November, 2023, 12:02Be the first to give this comment the thumbs up 0 likes

This looks like a very positive step forward in providing regulatory clarity for the UK private sector on the use of digital money and innovations with it, but the 'devil is in the detail' which no doubt will come out over the next few weeks as everyone analyses these papers.

There is a lot to chew on - the FCA's discussion paper is 110 pages, the BoE's looks almost as long and the CEO's letter is very dense - I expect CEO's, or at least their strategy teams will need to read it multiple times to understand the implications.

A key immediate observation is banks may issue tokenised deposits but are prevented from issuing stablecoins unless branded under a different entity - this is fair enough, but a pound is a pound and I expect branding stablecoins separately may cause confusion e.g. US stablecoins include USDT, USDC, TUSD, BUSD, PYUSD, USDP to name a few!