FCA and BoE publish proposals for regulating stablecoins

FCA and BoE have requested feedback on their proposals for regulating stablecoins in the context of the regulators looking to harness the potential benefits stablecoin could provide to UK consumers and retailers, especially by making payments faster and cheaper.

The proposals put forward aim to protect consumers, prevent money laundering with a robust set of rules and safeguard financial stability.

FCA’s discussion paper explores the proposed regulation around issuing and holding stablecoins that claim to maintain a stable value relative to a fiat currency by holding assets denominated in that currency. Its paper looks at Treasury’s proposed changes to the RAO that will bring issuance and custody of fiat-backed stablecoins within scope of FCA regulation.  The paper considers both the changes to FCA rules and requirements relating to authorised firms and how the separate requirements that will come with inclusion of fiat-backed stablecoins as a means of payment within the PSRs will apply. The paper looks at how regulation will treat UK and overseas issuers respectively. Where activities will come with in the RAO, the paper discusses how existing rules might be used or adapted. FCA asks several specific questions around backing assets and redemption, safeguarding and adapting the CASS regime including in respect of stablecoin firm failure, application of the Consumer Duty, custody requirements, prudential and organisational requirements, conduct of business and consumer redress. It also looks at Treasury’s proposals on allowing stablecoins issued overseas to be used for payment in the UK.

BoE’s discussion paper outlines how it would regulate operators of systemic payment systems using stablecoins. If these payment systems are widely used for retail payments in the UK, they could pose risks to financial stability, as could other entities providing services to these payment systems, such as stablecoin issuers and wallet providers. BoE also proposes to regulate these. Its paper looks at the different varieties of products that are “money” or act like money. BoE’s focus is on stablecoins widely used for payments in the UK and which may pose risks to financial stabilty, whereas FCA’s remit is wider. BoE’s regime would deal only with stablecoins used in systems that focus on providing payment services and would prevent the coins from performing other functions that would otherwise pose risks to provision of payments on a systemic scale – such as lending or investment.  Under FSMA 2023, once Treasury has recognised an operator of a recognised payment system using stablecoins or a stablecoin service provider, these will become subject to BoE’s powers.

Alongside this, FCA, BoE and PRA have published a cross-authority roadmap paper on innovation in payments and money. This roadmap paper explains how UK authorities’ current and proposed regulatory regimes for issuers of different forms of digital money or money-like instruments will interact.

The deadline for responding to both discussion papers is 6 February 2024.

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