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The Bank of England (BOE) and the Financial Conduct Authority (FCA) in the United Kingdom have unveiled their plans to regulate the stablecoin market, aligning with the UK government’s vision for crypto-friendly policies.
Beginning in early 2024, new regulations will govern fiat-backed stablecoins, with the BOE overseeing systemic stablecoins and the FCA regulating the broader cryptocurrency market.
These regulations are part of the UK government’s efforts to transform the nation into a crypto hub, as previously announced by Prime Minister Rishi Sunak.
Under the proposed rules, the BOE will primarily focus on stablecoins pegged to the British pound, as they are expected to be widely used for payments. The central bank is also considering placing limits on individual stablecoin holdings.
Big tech companies like Meta and PayPal will be allowed to issue payments-focused stablecoins in the UK, provided they meet the necessary criteria and obtain approval.
The FCA requires issuers to seek authorization for circulating fiat-backed stablecoins in or from the UK. It mandates that stablecoins must be backed by suitable assets matching their circulation value, and issuers must ensure the easy redemption of the cryptocurrency for fiat, irrespective of technical or liquidity challenges.
The FCA suggests that regulated stablecoin issuers should retain revenues generated from interest and returns on the backing assets to distinguish stablecoins from deposits. However, it acknowledges that this approach may appear unfair to consumers if interest rates rise significantly.
The proposals released in this discussion paper represent the initial phase in developing a new regulatory framework for stablecoins. Regulators will gather feedback from stakeholders, and the final rules will be subject to consultation.
The FCA and BOE aim to consult on the ultimate regulations by mid-2024 and implement the stablecoin regime by 2025, as detailed in an accompanying document published with the discussion papers.
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