The upward momentum in the cryptocurrency market continues, and investors are eagerly awaiting positive news. A notable development has recently occurred in the United Kingdom as legal regulations are being actively pursued. The UK government has publicly released an update regarding its plans to regulate fiat-backed stablecoins.
Stablecoin Regulations in the United Kingdom
The document, published on October 30, aims to facilitate the everyday use and regulation of fiat-backed stablecoins in payment chains operating in the United Kingdom. According to the published document, the HM Treasury plans to submit a specific legislation to parliament in 2024, placing the regulation of fiat-backed stablecoins under the authority of the Financial Conduct Authority (FCA).
In particular, Treasury officials aim to ensure that local companies, specifically payment processors authorized by the Financial Conduct Authority, ensure compliance of overseas stablecoin projects with local standards.
Non-fiat-backed stablecoin projects will not be allowed to enter regulated payment chains due to the presence of algorithmic mechanisms in their systems. It should be recalled that Terra’s stablecoin, USTC, had such an algorithm, which posed a significant problem for investors when the company went bankrupt.
What Does the Document Cover?
The document, which has been made public alongside these developments, does not directly impose a ban. However, there is a concern that these transactions will remain unregulated. Furthermore, the HM Treasury subjects them to the same requirements as unsupported crypto assets.
Standard stablecoins mentioned in the document will grant the FCA the authority to require stablecoin issuers to hold all reserve funds in a legal standard. The terms of these standards will be determined within the legal framework of the FCA, including redemption obligations in the event of the company’s failure. In the second scenario, UK stablecoin issuers will face procedures under the Insolvency Act 1986.
The Financial Services and Markets Act, which provides a centralized framework for all types of cryptocurrencies, passed the upper house of the British Parliament in June 2023. The Treasury document repeatedly references the bill and is referred to as the FCMA 2023. Under the FCMA 2023, the Treasury, the Bank of England, and the FCA will have the authority to regulate cryptocurrencies and stablecoins.
