UK Authorities Unveil Plans to Regulate Stablecoins
- UK authorities want to ensure that stablecoins are not used to facilitate or finance crimes.
- The FCA and BOE plan to implement the proposed policies by 2025.
- The SEC recently issued PayPal a subpoena in regard to its PYUSD stablecoin.
The UK authorities have released clear plans to regulate stablecoins. The Bank of England and the UK’s Financial Conduct Authority (FCA) published a discussion paper on Monday detailing how both regulators plan to oversee the stablecoin and crypto market.
The papers state that the BOE would regulate “systemic stablecoins” that are widely circulated and could possibly threaten financial stability. In addition, the FCA is charged with controlling the larger cryptocurrency industry.
The BOE noted that the papers released on Monday are the result of “an exploratory phase in developing the new regime.” Both regulators will consult on the final regulations once they receive feedback from the stakeholders. According to reports, the BOE and FCA plan to deliberate on the final rules in mid-2024 and effect the stablecoin policies in 2025.
The BOE’s proposals center on stablecoins tied to the value of the British pound. The central bank believes that such stablecoins will be used for payments. The BOE is also exploring the possibility of limiting the number of stablecoins that each individual can own.
The FCA, on its part, seeks to ensure that stablecoin issuers seek authorization to distribute fiat-backed stablecoins within or outside the UK. The financial watchdog said stablecoins should be secured by assets that are equal to the value in circulation. Furthermore, the FCA wants stablecoin issuers to ensure that users can easily redeem their assets for fiat currencies despite liquidity or technical concerns.
Monday’s papers acknowledged that a future where stablecoins are widely used, like the sterling, could have associated risks. One of the concerns is the use of non-custodial crypto wallets and their potential to facilitate crimes like terrorism, financial fraud, and money laundering.
According to the paper,
If operating at scale, unhosted wallet providers and the money laundering and terrorist financing risks they pose may hinder the ability of a systemic stablecoin payment chain to deliver against the [Financial Policy Committee]’s expectations.
Stablecoins are digital assets pegged to a fiat currency such as the dollar, pound, or euro. While many crypto users prefer stablecoins for their price stability, regulators globally feel the need to regulate these assets.
Last year, the Terra ecosystem saw a massive collapse that wiped off billions of investor funds. Regulators cite such situations as the need for clear guidelines protecting the stablecoins market.
Also, regulators are concerned about the increasing numbers of institutional giants entering the stablecoin space. Meta and PayPal have already expressed their interest in the sector. PayPal released the PayPal USD (PYUSD) in August and recently received a subpoena from the US Securities and Exchange Commission (SEC) regarding the stablecoin.
It remains to be seen how the proposed policies will affect the stablecoin market. A recent report from QuickNode ranks stablecoins as the most vibrant sector of the crypto market in Q3, surpassing DeFi, gaming, and NFTs.