Non-fiat-backed stablecoins will not be allowed into regulated payment chains.
The United Kingdom government has published an update to its plans to regulate fiat-backed stablecoins. The document, published on Oct. 30, aims to facilitate and regulate the use of fiat-backed stablecoins in U.K. payment chains.
According to the document, His Majesty’s Treasury intends to introduce specific legislation to parliament in 2024, bringing the regulation of fiat-backed stablecoins under the Financial Conduct Authority’s (FCA) mandate.
Notably, the Treasury is looking into making the local companies “arrangers of payment,” authorized by the FCA, responsible for ensuring the overseas stablecoin meets the local standards.
Non-fiat-backed stablecoins, including algorithmic stablecoins, will not be allowed into regulated payment chains. However, the document doesn’t impose a direct ban but makes a reservation that “these transactions will remain unregulated.” Moreover, the Treasury considers them subject to the same requirements as unbacked crypto assets.
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As for standard stablecoins, the FCA will get the authority to demand the stablecoin issuers hold all the reserve funds in a statutory trust. The terms of the trust will be set out in the FCA’s rules, including the redemption obligations in the case of the firm’s failure. In the latter scenario, U.K. stablecoin issuers will face procedures under the Insolvency Act 1986.
The central framework for all kinds of crypto, the Financial Services and Markets Act, passed in the House of Lords — the U.K. parliament’s upper chamber — in June 2023. The Treasury’s document repeatedly refers to the bill, naming it the FCMA 2023. It is under the FCMA 2023 that the Treasury, the Bank of England and the FCA get their powers to regulate crypto and stablecoins in particular.
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