The Financial Conduct Authority (FCA) and the Bank of England (the Bank) are requesting feedback on their proposed approach to regulating stablecoins. The Bank’s proposals cover any payment systems in the future that use stablecoins in the UK at systemic scale.

Stablecoins are a new type of digital asset which aim to maintain a stable value. They could be used for retail payments in the future.

The proposed regulatory approach put forward by the FCA and the Bank looks to harness the potential benefits stablecoins could provide to UK consumers and retailers, in particular by making payments faster and cheaper. The proposals to regulate stablecoins aim to protect consumers, prevent money laundering with a robust set of rules and to safeguard financial stability.

The 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.

The Bank’s Discussion Paper outlines how the Bank of England would regulate operators of systemic payment systems using stablecoins – payments systems which, if widely used for retail payments in the UK, could otherwise pose risks to financial stability. The Bank would also regulate other entities providing services to these payment systems, such as stablecoin issuers and wallet providers, where they could otherwise pose financial stability risks.

Sheldon Mills, Executive Director, Consumers and Competition, FCA, said:

“Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely. Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives.

“We look forward to continuing our engagement with Government, our partners and the wider crypto industry as we move forward with the Government’s first phase in developing the UK’s crypto regulation regime and beyond.”

Sarah Breeden, Deputy Governor for Financial Stability, Bank of England, said:

“Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place. Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.”

The FCA and the Bank welcome feedback from the public and industry by 6 February 2024.

The Prudential Regulatory Authority (PRA) has also published a Dear CEO letter, on how it expects deposit-takers to address the risks that arise from issuing multiple forms of digital money, while welcoming the benefits that could come from innovation in this area. The letter also sets out the PRA’s broader expectations for banks regarding their use of digital money for retail or wholesale innovations, in areas such as operational resilience, anti-money laundering, counter-terrorist financing, and liquidity and funding risks.

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

The FCA continues to warn people that cryptoassets, including stablecoins currently, remain largely unregulated and high-risk, with no protections if something goes wrong.

Source: Bank of England