UK Clarifies FCA’s Incoming Role in Regulating Stablecoins

The United Kingdom government has published today (Monday) an updated version of its plans to regulate the fiat-backed stablecoins, revealing the approach of the Financial Conduct Authority (FCA) and Bank of England.

Upcoming Legislation on Stablecoin

According to the 21-page document, the UK government aims to introduce the legislation in early 2024. The UK lawmakers already passed the Financial Services and Markets Act 2023 in June, clearing crypto to be regulated as a regulated financial instrument.

With the introduction of the proposed rules, the FCA will oversee certain activities relating to fiat-backed stablecoins.

“HM Treasury will bring activities relating to fiat-backed stablecoins into the FCA’s regulatory perimeter via secondary legislation. The precise legal drafting is to be developed, and draft secondary legislation will be published before legislation is subsequently laid in Parliament,” the paper stated.

Role of the FCA

In the rules, the FCA will be expected to specify requirements for backing assets for fiat-backed stablecoin issued, along with redemption rights, capital requirements, and other things. The regulations will mandate that fiat-backed stablecoins are held in a statutory trust.

However, the FCA will consult on the rules publicly before making them effective.

The rules proposed by the HM Treasury additionally intend to oversee mixed stablecoin payments and pure stablecoin payments.

“This will cover payments including those relating to purchasing a service or good in a retail payment in shops or online,” the paper added. “In line with fiat peer-to-peer transfer, this will not include peer-to-peer stablecoin transfers where the payment service underpinning or facilitating the transfer is not offered on a commercial basis. It will also not include the purchase of stablecoin using fiat currency as this is already regulated under the PSR 2017.”

Meanwhile, the Bank of England will supervise the DSA service providers designed to capture the stablecoin-based arrangements.

“In a scenario where an FCA-authorised fiat-backed stablecoin firm is recognized as systemic by HM Treasury, and so should be supervised by the Bank of England, the government expects that the Bank of England should act as the lead prudential regulator and be able to supervise…, while the firm continues to also be regulated by the FCA for conduct,” the HM Treasury mentioned.