UK Regulatory Authorities Seek Feedback on Stablecoin Oversight 


Financial authorities in the UK are actively soliciting feedback on their proposed regulatory approach to stablecoins. The Financial Conduct Authority (FCA) and the Bank of England are jointly seeking input on their plan to oversee the use of stablecoins in systemic payment systems within the country.    

Stablecoins, a novel class of digital assets designed to maintain a stable value, have the potential to play a role in future retail payments. The FCA and the Bank of England’s proposed regulatory framework aims to harness the benefits that stablecoin can offer, primarily in terms of expediting and reducing the cost of transactions. This initiative is also geared towards protecting consumers, combatting money laundering through robust regulations, and ensuring the stability of the financial system.   

The FCA’s Discussion Paper delves into the proposed regulations governing the issuance and holding of stablecoins, particularly those claiming to maintain a stable value relative to a fiat currency by holding assets denominated in that currency.    

Meanwhile, the Bank of England’s Discussion Paper outlines how the central bank would regulate operators of systemic payment systems using stablecoins, especially those payment systems that could pose risks to financial stability when widely used for retail payments in the UK. The Bank’s regulatory oversight would also extend to other entities, such as stablecoin issuers and wallet providers, where potential financial stability risks are identified.   

Sheldon Mills, the FCA’s Executive Director for Consumers and Competition, emphasized the transformative potential of stablecoins in making payments faster and more cost-effective, underlining the importance of developing secure and proportionate regulations to encourage innovation while safeguarding the interests of consumers and businesses.   

Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, noted that stablecoin have the potential to enhance digital retail payments in the UK, necessitating clear and robust regulations to support safe innovation while ensuring public confidence in digital money and payment systems.   

Both the FCA and the Bank welcome input from the public and the industry until 6 February 2024, reflecting their commitment to creating an effective regulatory framework through a consultative approach.   

In addition to these efforts, the Prudential Regulatory Authority (PRA) has issued a “Dear CEO” letter, outlining expectations for deposit-takers to address risks associated with issuing various forms of digital money. While encouraging innovation, the PRA underscores the importance of addressing operational resilience, anti-money laundering, counter-terrorist financing, and liquidity and funding risks. 

Furthermore, the FCA, the Bank of England, and the PRA have jointly published a roadmap paper that provides insights into the current and proposed regulatory regimes for issuers of digital money and money-like instruments. This roadmap clarifies how the UK’s regulatory authorities will interact to oversee these emerging financial innovations.  

Despite these regulatory initiatives, the FCA continues to caution the public that crypto assets, including stablecoins, remain largely unregulated and carry inherent risks with no recourse for consumers if something were to go wrong.

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