European markets org UK warns on stablecoin regulations and security

Responses to the discussion paper on stablecoin regulation in the United Kingdom were originally all due on February 6, but the Bank of England (BOE) has extended the comment period on the paper until the morning of February 12. The Financial Conduct Authority (FCA) discussion paper is due 6 February. The Association of Financial Markets in Europe (AFME) has submitted timely comments to the FCA.

The discussion papers were released on November 6 as part of a “package of joint publications” as a first step towards comprehensive crypto-asset regulation. Although related to the theme, the papers of the agencies approach the topic from different angles.

The BOE is primarily concerned with the use of sterling-backed retail stablecoins in systemic payment systems, such as transfer functions and requirements for wallet providers. The FCA's discussion paper examined a range of stablecoin use cases and focused on auditing and reporting, prudential requirements, support and custodianship. It emphasized the principle of “same risk, same regulatory effect”.

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The FCA also oversees custody, although the BOE also sees the possibility that the FCA may be aware of other areas such as off-chain transactions and anti-counterfeiting and your client's requirements for unmanaged wallets. Services that provide “services that may be systemic in their own right or essential to systemic payment systems using Statcoins or recognized Statcoin service providers” may also be subject to dual regulation.

We have extended the deadline for your comments on our discussion paper on a procedural payment system using stable science and related service providers.

Leave your comment here: https://t.co/G3RaQLp86C

Consultation closes Monday, February 12, 10am. pic.twitter.com/THnuNnIXlo

— Bank of England (@bankofengland) February 6, 2024

James Kemp, AFME's managing director of technology and operations, hailed the UK's proposals as a “positive step” in a statement. He expressed concern about the handling of securities tokens.

According to the FCA, security tokens are “cryptoassets which […] Already meet the definition of investment under RAO [the Financial Services and Markets Act 2000 through the Regulated Activities Order] So they are already subject to regulation. Kemp said:

“Safety signs […] They are securities in nature and should be treated as such throughout their lifetime. It is important that they are not subject to the specific regulatory treatment and jurisdiction proposed by the FCA to protect the functioning of the market.

The AFME spokesperson also suggested that the FCA partially retain the proposal in relation to stablecoins issued abroad as long as they are not subject to international frameworks and mature markets.

Stablecoin regulations are expected to come into effect in the UK by 2025.

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