UK FCA and BoE Release Papers on Stablecoin Regulation

On November 6, both the Bank of England (BOE) and the Financial Conduct Authority (FCA) published discussion papers regarding the regulation of stablecoins. The BoEs focus is on stablecoins denominated in sterling (GBP) because it considers these to be the most likely digital settlement assets to be used widely for payments.

The apex banks regulatory regime is meant for business models that focus on payment-related activities and innovation within payments. Retail use and proposed limits are other aspects touched by the regime, based on the consideration that unbacked crypto assets, or any other unbacked digital settlement assets, would not be suitable for widespread use in retail payments in the country.

“It follows the principle of ‘same risk, same regulatory outcome’. To the extent that systemic payment systems using stablecoins pose similar risks as other systemic payment systems, they should be subject to equivalent regulatory standards,” reads the discussion paper.

The focus of the FCAs regime is on addressing the risks of stablecoins claiming to maintain a stable value relative to a fiat currency by holding assets denominated in that currency. The regulation is for prudential and conduct purposes.

According to the FCA, the Treasury is working towards defining fiat-backed stablecoins in legislation, such it captures stablecoins seeking to maintain a stable value by reference to a fiat currency, and hold (in part or wholly) currency as ‘backing’.

Likewise, they want to modify payments legislation to facilitate retail payments for goods and services using fiat-backed stablecoins. “This includes an option the Treasury are exploring to allow certain stablecoins which are issued outside of the UK (overseas stablecoins) to be used for payments,” reads the paper.