U.K. regulators published plans to regulate stablecoins on Monday.
The FCA, which will oversee stablecoin issuers alongside the Bank of England, is setting tough standards for firms, an official told CoinDesk.
The U.K.’s financial watchdog won’t deviate from its usual tough stance on crypto when regulating stablecoins under proposed rules, an official told CoinDesk.
The Financial Conduct Authority (FCA) on Monday published a discussion paper with proposals for a stablecoin regime. Though the country’s Conservative government has said it wants the U.K. to be a crypto hub and has managed to push through legislation that lets stablecoins be regulated as a means of payment, the FCA has been a strict regulator and it will do most of the supervision work involving the broader crypto sector.
“Ultimately, we’ll set the standards,” Matthew Long, director of payments and digital assets at the FCA, told CoinDesk. “Those that meet the standards will be admitted and those that don’t meet the standards won’t get through and we won’t apologize for those high standards.”
Long said officials have seen stablecoins used to launder money, as well as poor practices among issuers and issues with de-pegging, where the cryptocurrency loses its par with the asset it’s pegged to. One such de-pegging in 2022 caused devastation in crypto markets and made regulators worry about contagion and damage to broader financial systems.
“We’ve seen lots of things that we’re really concerned about and at the end of the day, the person this actually affects is the customer,” Long said.
The regime
The FCA’s proposed stablecoin regime will require prospective stablecoin issuers in the U.K. to apply for authorization. Issuers can proceed only if they can prove they meet various requirements such as ensuring their crypto maintains a stable value and they can keep accurate records that ensure a firm holds “the correct amount of regulated stablecoin backing assets for a consumer,” the discussion paper said.
To regulate stablecoins in the country, the FCA will work with the Bank of England, Long explained.
The BOE also released a discussion paper on Monday containing its own plans to be the primary regulator for stablecoins backed by the British pound that are in wide use – and have the ability to threaten financial stability should they collapse.
“We will have to come together because we are looking at business conduct and the BOE is looking at bank and prudential,” Long said.
The FCA will be observing the market and will be on the lookout for the emergence of wide-use “systemic” stablecoins, Long said. He added the two regulators plan on setting out a formal agreement on what their roles will look like.
What’s next
The FCA is seeking comments on the proposals it laid out in Monday’s discussion paper. It will engage with the industry via roundtables and other discussions to gather feedback, Long said.
“There are a number of different ways that we can approach the problem and working with industry helps us ensure that we create our high standards, avoiding money laundering, but also supporting innovation,” he explained.
To ensure firms comply with its rules, the FCA will host meetings and inspections, but regulators have yet to decide on penalties for those that do not comply.
“There’s a number of things that we might consider, which are in legislation, which normally are fines, imprisonment, and other supervisory tools that we’ve got,” Long said.
Read more: UK Financial Watchdogs Publish Plans to Regulate Stablecoins
