Government to regulate stablecoins

Following its consultation last year, Treasury has decided it will regulate stablecoins. It plans to bring activities that issue or facilitate the use of stablecoins that are used as a means of payment within the UK regulatory perimeter, and proposes to do this mainly through amending e-money and payments legislation.  This will also be the first step into what will be a wider consultation later this year on regulating a wider set of cryptoasset activities.

The Government plans:

• an amended e-money framework that will provide a consistent framework within which to regulate stablecoin issuance and the provision of wallets and custody services: it has in mind:
  • developing a definition for “payment cryptoasset” or a similar term that will bring into scope any cryptographically secured digital representation of monetary value which is, among other things, stabilised by reference to one or more fiat currencies and /or is issued and used as a means of making payment transactions. This would achieve the desired effect of excluding, for example, models which stabilise their value by referencing other assets;
  • applying the EMR safeguarding requirements to customer funds received in exchange for issuing a stablecoin;
  • generally applying the exemptions and contents of e-money regulation to stablecoins and their issuers in the same way as they apply in respect of e-money;
• introducing a new regulated custodial activity for wallet providers, which FCA will police;
• to extend the applicability of Part 5 of the Banking Act 2009 to include stablecoin activities where the risks have the potential to be systemic; and
• to extend the scope of the Banking Reform Act to ensure relevant stablecoin-based payment systems are subject to appropriate competition regulation by the PSR.

Additionally:

• the Government is developing an FMI sandbox to support firms wanting to innovate, including by using DLT and other developing technologies; and
• later this year, there will be further consultation on cryptoasset regulation and the growth of decentralised finance.