UK Government to Regulate Fiat-Backed Stablecoins

The United Kingdom government has updated its intentions to regulate stablecoins backed by fiat currency. The document, which was published on October 30, seeks to facilitate and regulate the use of stablecoins backed by fiat currency in U.K. payment chains.

His Majesty’s Treasury plans to introduce specific legislation to parliament in 2024, bringing the regulation of fiat-backed stablecoins under the purview of the Financial Conduct Authority (FCA).

Notably, the Treasury is considering making local companies authorized by the FCA “payment arrangers” responsible for ensuring the foreign stablecoin meets local standards.

Stablecoins that are not supported by fiat currency, including algorithmic stablecoins, will not be permitted in regulated payment chains. However, the document remarks that “these transactions will remain unregulated.”

In addition, the Treasury views them as subject to the same regulations as unbacked crypto assets.

Regarding standard stablecoins, the FCA will be granted the authority to require stablecoin issuers to retain all reserve funds in a statutory trust.

The FCA’s rules will specify the provisions of the trust, including redemption obligations in the event of the firm’s failure. In the latter scenario, stablecoin issuers in the United Kingdom will be subject to the Insolvency Act of 1986.

The Financial Services and Markets Act, the central framework for all types of crypto, was enacted by the House of Lords—the upper chamber of the British parliament—in June 2023.

The FCMA 2023 is repeatedly referenced in a document from the Treasury. The FCMA 2023 grants the Treasury, Bank of England, and FCA the authority to regulate cryptocurrencies and stablecoins in particular.