UK's FCA and BOE Lay Groundwork for Stablecoin Regulation, Target 2025 for Implementation
Summary:
The United Kingdom's Financial Conduct Authority (FCA) and the Bank of England (BOE) have released a series of documents discussing stablecoin regulation. The FCA proposed that stablecoin holders have direct redemption rights, a shift expected to place issuers in a more bank-like role. Existing frameworks for stability and anti-financial crime may be adapted to encompass broader crypto asset regulation. The FCA and BOE are considering requirements, roles, and regulations for stablecoin issuers, wallet providers, and other related services. Aimed at avoiding customer confusion, clear distinctions between e-money or regulated stablecoins and other deposits have been emphasized. The BOE roadmap targets 2025 for implementation.
On November 6, a series of documents related to stablecoin regulation were introduced in the United Kingdom. Both the Financial Conduct Authority (FCA) and the Bank of England (BOE) released discussion papers. Additionally, a letter directed to CEOs of institutions that accept deposits was put out by the BOE's Prudential Regulatory Authority (PRA). The BOE also provided a “cross-authority roadmap” to coalesce these resources. These releases followed a preliminary document published by His Majesty’s Treasury on October 30, previewing regulatory plans.
The FCA's paper offered a more extensive exploration of this subject, highlighting that stablecoin regulation could become the pathway to wider crypto asset regulation. This paper discussed potential applications of stablecoin for retail and wholesale entities, while considering aspects like auditing, reporting, issuer-owned coin backing, and autonomy of custodian holding backing assets.
The paper focused on how the "same risk, same regulator outcome" principle could potentially be employed. It suggested that existing rules on redemption and custody along with senior management arrangements for business organization could be used as a basis. Various operational resilience and financial crime frameworks already exist that could further support this approach.
The FCA proposed that stablecoin holders should have direct redemption rights, a shift which could prompt issuers to operate more similarly to banks and thereby escalate Anti-Money Laundering/Know Your Customer (AML/KYC) issues.
The FCA may adapt the current rules and guidelines for regulated stablecoin issuers and custodians to be applicable to other crypto assets over time. The BOE paper studied the application of retail-centered stablecoin in essential payment systems. It examined transfer function and wallet provider requirements along with other services, echoing some aspects of the FCA's discussion on stablecoin issuers and deposit protection.
While the BOE plans to depend on the FCA to regulate custodians, it isn't discounting the possibility of introducing its own requirements if required. It identified AML and KYC measures for unhosted wallets and off-chain transactions as potential regulatory challenges.
The PRA letter from the BOE stressed the importance of clearly distinguishing between "e-money or regulated stablecoins" and other deposit types. It warned of potential confusion among customers, particularly retail ones. Institutions accepting deposits were advised to limit their offerings to deposits and ensure distinguishable branding for issuance activities. It also suggested that any institution wanting to accept deposits should swiftly involve the PRA in the process. The PRA also wished to emphasise that innovations in this area would still be subject to existing laws and obligations. The BOE also provided a roadmap with a target implementation date set for 2025.
Published At
11/6/2023 8:10:38 PM
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