The European markets organization has issued a cautionary note to the United Kingdom regarding stablecoin regulations and securities, urging careful consideration and alignment with international standards.
Originally, responses to the discussion papers on stablecoin regulation in the UK were due by February 6th. However, the Bank of England (BOE) has extended the comment period on its paper until the morning of February 12th. Despite this extension, the deadline for comments on the Financial Conduct Authority (FCA) discussion paper remained February 6th. The Association for Financial Markets in Europe (AFME) submitted its comments to the FCA on time.
Released as part of a joint publication package on November 6th, the discussion papers signify the initial step towards comprehensive regulation of crypto-assets. While thematically linked, each agency’s paper approaches the topic from distinct perspectives.
The BOE primarily addresses issues concerning the use of sterling-backed retail-focused stablecoins in systemic payment systems, focusing on transfer functions and requirements for wallet providers. On the other hand, the FCA discussion paper explores various stablecoin use cases, emphasizing auditing, reporting, prudential requirements, backing, and custodianship. The principle of “same risk, same regulator outcome” is underscored, with the FCA also regulating custodianship.
In response to the UK proposals, James Kemp, AFME’s Managing Director of Technology and Operations, hailed them as a positive step forward. However, he expressed apprehension regarding the treatment of securities tokens, emphasizing their inherent nature as securities and advocating for consistent regulatory treatment throughout their lifecycle.
Kemp highlighted concerns about the proposed regulatory treatment and territorial scope for custody, urging the FCA to avoid separate regulatory frameworks for security tokens to ensure market functioning and integrity.
Additionally, the AFME spokesperson recommended delaying aspects of the proposal concerning stablecoins issued overseas until international frameworks and mature markets are established abroad.
Stablecoin regulations are slated to be implemented in the UK by 2025, marking a significant step towards comprehensive oversight of digital assets in the country.