The UK government has published an update to its plans to regulate fiat-backed stablecoins, aiming to facilitate and regulate their use in the country's payment chains. The 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. The Treasury is considering making local companies "arrangers of payment," responsible for ensuring that overseas stablecoins meet local standards. Non-fiat-backed stablecoins will not be allowed into regulated payment chains but won't be directly banned. They will remain unregulated, subject to the same requirements as unbacked crypto assets.


The United Kingdom government has published an update to its plans to regulate fiat-backed stablecoins, aiming to facilitate and regulate the use of such stablecoins in the country's payment chains.


The document, published on October 30, outlines the government's intentions to regulate fiat-backed stablecoins and facilitate their use. The primary objectives of the regulation include ensuring consumer protection, supporting innovation in the payments sector, and safeguarding financial stability.


Key points from the document include:


  • Regulation under the Financial Conduct Authority (FCA): His Majesty's Treasury intends to introduce specific legislation to parliament in 2024, bringing the regulation of fiat-backed stablecoins under the FCA's mandate.

  • Role of Local Companies: The Treasury is considering making local companies "arrangers of payment." These companies would be authorized by the FCA and would be responsible for ensuring that overseas stablecoins meet local standards. This approach aims to create a trusted system for consumers.

  • Treatment of Non-Fiat-Backed Stablecoins: Non-fiat-backed stablecoins, including algorithmic stablecoins, will not be allowed into regulated payment chains. However, the document does not impose a direct ban but reserves that "these transactions will remain unregulated." Moreover, the Treasury considers them subject to the same requirements as unbacked crypto assets.

  • Reserve Funds and Statutory Trust: For standard stablecoins, the FCA will have the authority to demand that stablecoin issuers hold all the reserve funds in a statutory trust. The terms of the trust, including the redemption obligations in case of the issuer's failure, will be set out in the FCA's rules. In the event of the issuer's failure, 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 in June 2023. The Treasury's document refers to this bill as the FCMA 2023, under which the Treasury, the Bank of England, and the FCA gain their regulatory powers over cryptocurrencies and stablecoins, enabling them to regulate these digital assets.


Overall, the UK government's approach to regulating stablecoins is aimed at creating a robust and trusted environment for the use of these digital assets in payment chains while ensuring the protection of consumers and the stability of the financial system.

(DAVID ATTLEE, COINTELEGRAPH, 2023)