A report from the Financial Services Regulation Committee raises concerns about how the UK proposes to regulate stablecoins. It is concerned both that the UK is lagging behind other jurisdictions in getting a regulatory regime in place at all, and that several elements of the planned regime diverge from international standards. It urges the BoE, Treasury and FCA to carry out more modelling and to consider whether existing legal frameworks will be enough to detect and deter illicit activity using private unhosted and unregulated wallets. It also calls for more work on how to determine whether a stablecoin is systemic and whether it is appropriate to use a k-factor requirement for issuers that increases with the volume of stablecoins. The Committee also questioned the restrictions on commercial banks issuing stablecoins.
The upshot of the report is that the regulatory framework must be flexible enough to cater for use cases as they develop, and not inadvertently apply stricter standards than apply to other forms of payment or apply greater restrictions than are necessary. The regulators should also recognise that, as the market is nascent and growing, regulation will need to adapt as the market does, and should not try to pre-emptively address all potential future risks.
Finally, the Committee says the regulators seem confused about who is responsible for what element of the regime, and should work together to mitigate the risks of confusion, but should not let the planned timetable slip.