The UK government has recently released a policy update that outlines the country’s approach to regulating stablecoins, with a focus on fiat-backed stablecoins. The policy update provides information on the role of various regulatory bodies, including the Financial Conduct Authority (FCA), the Bank of England (BoE), and the Payment Systems Regulator (PSR).
The HM Treasury’s policy update highlights two main areas of regulation for stablecoins – their use in payment chains and their issuance and custody within or from the UK. This means that regardless of the purpose of a fiat-backed stablecoin (whether for payments, settlement assets, or as a store of value), it will fall under the regulatory scope of these institutions.
The document emphasizes the need to minimize potential customer harm and to mitigate conduct, prudential, and financial stability risks associated with stablecoins, particularly in payments. The FCA, BoE, and PSR will work together to achieve these objectives while coordinating their efforts and adopting a clear and consistent approach to regulation.
Under the proposed regulatory framework, stablecoins will be brought within the FCA’s regulatory perimeter through secondary legislation. However, in the case of a firm recognized as systemic, both the FCA and BoE will share the responsibility of supervision. The document states that if an FCA authorized fiat-backed stablecoin firm is deemed systemic, the Bank of England will act as the lead prudential regulator, while the firm will continue to be regulated by the FCA for conduct.
The UK’s legislation on the regulation of cryptocurrencies is expected to come into effect in 2024, following the passing of the Financial Services and Markets Act 2023. The recent policy update aims to prepare government agencies and regulators for the upcoming regulatory landscape.
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