The Financial Services Regulation Committee has published its report Stablecoins: waiting for regulation.

• Report: Stablecoins: waiting for regulation (HTML)
• Report: Stablecoins: waiting for regulation (PDF)
• Inquiry: Growth and proposed regulation of stablecoins in the UK
• Financial Services Regulation Committee

The inquiry

The Financial Services Regulation Committee, chaired by The Baroness Noakes DBE, launched an inquiry in January into the growth and proposed regulation of stablecoins in the UK, with a focus on the regulatory proposals from the Bank of England and the Financial Conduct Authority (FCA).

Key conclusions and recommendations

The Committee’s report includes findings that:

• The UK is currently lagging behind in developing its regulatory regime compared to the USA and EU;
• The regulators must adhere to current timelines and ensure that the final regulatory regime must not be delayed;
• There are several elements of the UK’s proposed regime which would diverge from international equivalents, including in requirements for systemic issuers to hold unremunerated backing assets, the proposed stablecoin holding limits, and the restrictions on commercial banks issuing stablecoins;
• The Bank of England should conduct more granular modelling of the impact of imposing holding limits on high-value use cases;
• HM Treasury should consider with the Bank of England and the FCA whether the existing legal frameworks are sufficient to detect and deter illicit activity using private unhosted and unregulated wallets, and should be prepared to legislate to restrict their use if necessary;
• HM Treasury should set out further details about how it will determine whether stablecoins are systemic;
• The FCA should reconsider whether a k-factor requirement for stablecoin issuers that increases with the volume of stablecoins is appropriate.

Chairman’s comments

On publication of the report, Baroness Noakes said:“ The global stablecoin market is dominated by US dollar stablecoins and evolved to serve cryptoasset trading.  New uses for stablecoins are emerging and regulators globally are setting up regulatory regimes. The UK is lagging behind compared with the US and the EU but is now moving in the right direction.“

The committee support much of what the Bank of England and Financial Conduct Authority are proposing. There are, however, elements of the proposals which should be reconsidered, particularly in relation to holding limits, unremunerated backing assets, and restrictions on commercial banks issuing stablecoins.

“No-one knows whether or how a UK-based stablecoin market could develop. Regulation needs to allow innovation while ensuring that risks are effectively mitigated. The shape of any UK stablecoin market will be strongly influenced by the direction of the regulatory regime, and so it is important that the regulators get this balance right.”

Source: UK Parliament