UK stablecoin regulation is starting to take shape with a number of FCA, BOE documents
On November 6, a set of documents was published regarding stablecoin regulation in the United Kingdom. The Financial Conduct Authority (FCA) has issued a discussion paper, as has the Bank of England (BOE). To go along with those, the BOE's Prudential Regulatory Authority (PRA) issued letters to CEOs of depository institutions, and the BOE issued a “cross-jurisdictional roadmap” to connect them.
Her Majesty's Treasury has set the stage for the chaos to be released on October 30 with a short document on regulatory plans. The FCA paper explored the same ground in more detail.
Stablecoin regulation is the first step towards broader crypto asset regulation, the FCA said. The discussion paper outlines potential retail and wholesale stablecoin use cases. Discussions include auditing and reporting, support for issuer-owned coins, and custodian independence for supporter assets.
The paper focuses on ways in which the principle of “same risk, same regulatory effect” can be applied. It proposes to use the existing client property regime as a basis for redemption and guardianship and top management arrangements, systems and sources of control to organize business affairs. There are existing operational recovery and financial crime frameworks, among others.
The United Kingdom's FCA proposes that stablecoin holders have direct redemption rights. This makes issuers more like banks and removes many AML/KYC issues for issuers pic.twitter.com/lZLQXlmemu
— Sean Tuffy (@SMTuffy) November 6, 2023
The FCA is considering adapting existing state-of-the-art requirements for regulated stablecoin issuers and custodians from the current regime and making them applicable to other crypto assets.
The BOE paper looked at the use of a retail-based stablecoin based on sterling in systemic payment systems. It considers transfer functionality and requirements for wallet providers and other services and partially overlaps with the FCA's discussion of stablecoin issuers and deposit protection.
Related: UK crypto businesses to comply with FATF travel rules from September
The BOE said it would “rely” on the FCA to regulate custodians, but left open the possibility of setting its own requirements if necessary. Address anti-fraud and identify your customer requirements as regulatory pain points for unmanaged wallets and off-chain transactions.
The BOE PRA letter emphasized that the distinction between “e-money or regulated stablecoins” and other types of deposits should be clearly defined.
“With the emergence of multiple forms of digital currency and cash-like instruments, confusion may arise among customers, especially retail customers, if deposit-taking firms offer e-money or controlled deposits of stolkcoins. He said.
Deposit-taking institutions must limit their creativity to deposits. Extractive activities should have a distinct trademark, the PRA advised. An issuer seeking to take deposits should also act quickly and involve the PRA in the process. Finally, he recalled that innovations in deposit taking are also subject to rules and regulations.
The BOE roadmap includes a timeline with a 2025 implementation date.
Journal: Unstable Coins: Debasement, Bankruptcy and Other Risks Looming.
