Will Stringent Regulations Make Stablecoins New Mode of Payment in UK?

The UK Financial Conduct Authority (FCA) and the Bank of England (Bank) have opened feedback for two papers discussing stablecoin regulations. The papers consider how these assets can be used safely for future payment systems on a system-wide scale.

The paper from the FCA proposes that stablecoin issuers ensure “good outcomes” for their customers. The Bank of England said stablecoins could enhance digital retail payments with firmer regulations.

Central Bank Could Oversee Stablecoin Issuers

FCA executive director Sheldon Mills said of the proposal that stablecoins can make payments cheaper and faster. That is why the public must help refine the rules needed to make such transactions safer.

“Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilize 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.”

The FCA said that issuers of stablecoins act in the best interest of the customer. The bank discussed ideas around how it would govern payment systems through its Prudential Regulation Authority, which polices financial services.

The bank’s paper warned banks to clearly mark stablecoin deposits to avoid customers confusing them with traditional deposits. Banks and other issuers should only issue stablecoins from non-deposit-taking and insolvency-remote entities.

Stablecoin vs. traditional payments | Source: S&P Global

Banks must also take care to ensure operational resilience and take measures to fight money laundering, liquidity, and terrorism financing risks. The comment period for the discussion papers will end on Feb. 6, 2024.

Stablecoins are digital assets that track the value of money issued by governments. Their issuers must keep one unit of fiat currency for every stablecoin they issue into the market.

Crypto exchanges can sell stablecoins to customers in exchange for fiat. To do this, exchanges often enlist the help of third parties that operate networks to bring fiat value onto blockchains.