The UK, not one to be left behind in the crypto race, has recently unveiled its final proposals concerning the regulation of crypto stablecoins. This move is seen as a significant step towards ensuring consumer protection and maintaining financial stability in the rapidly growing world of digital currencies.
The UK's approach to regulating stablecoins is twofold. Firstly, it aims to regulate the use of fiat-backed stablecoins in payment chains. This means that any entity facilitating payments using these stablecoins will come under the regulatory purview. Secondly, the activities of issuance and custody of these stablecoins will be regulated. This ensures that firms wishing to engage in these activities will need to seek authorization, thereby ensuring a standardized and safe environment for consumers.
One of the primary concerns addressed in the proposal is the safeguarding of backing assets. The government is considering allowing the Financial Conduct Authority (FCA) and the Bank of England to make rules requiring stablecoin issuers to hold backing assets for the benefit of their customers. This would be done through a trust model, where the terms of the trust, including the conditions under which the backing assets could be paid out, would be clearly defined by the FCA's rules.
Furthermore, the government is keen on exploring the feasibility of an approach where the arranger of the payment, i.e., the entity facilitating the payment using a fiat-backed stablecoin, is authorized by the FCA. This would ensure that there's a clear line of responsibility and accountability in the payment chain, further enhancing consumer protection.
