An October 30th update from the UK's Treasury revealed the government's intention to create a detailed legal framework governing fiat-based stablecoins.
The government aims to craft legislation by 2024 assigning oversight of these digital assets to the FCA.
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Domestic companies facilitating payments may soon have to gain FCA approval, particularly for stablecoins originating outside the UK. This is part of a broader plan to enforce stringent local standards across the stablecoin market.
The Treasury's proposal is not all-encompassing; it notably leaves out stablecoins not backed by fiat currencies. These algorithmic and non-fiat stablecoins won't be outright banned but will remain outside the regulated payment framework. They will follow the same treatment as other cryptocurrencies that don't have a fiat backing.
Regarding asset security, the Treasury empowers the FCA to require stablecoin issuers to keep all reserves in an officially recognized trust. Future FCA guidelines will detail the trust's specifics, including what actions would follow if a firm goes insolvent. Under such insolvency situations, issuers would be subject to conditions set by the UK's 1986 Insolvency Act.
Notably, the newly revealed plans relate to the Financial Services and Markets Act, known as FCMA 2023, ratified by the House of Lords earlier this year. This overarching act serves as a cornerstone, granting legislative powers to the Bank of England, the Treasury, and the FCA to regulate cryptocurrencies, including stablecoins.
It is worth noting that this year, the UK's FCA also introduced new advertising rules targeting crypto-related firms.
By releasing this updated framework, the UK government is taking a step forward in creating a secure and regulated environment for fiat-based stablecoins. The legislation, which will give regulatory powers to the FCA, is expected to bring both clarity and structure to this burgeoning sector of the crypto market.
