- The FCA will be responsible for regulating fiat-backed stablecoins.
- In the event of a company collapse, the FCA’s guidelines will outline the redemption steps.
The UK government has updated its intentions to regulate stablecoins backed by fiat currency. The paper was released on October 30 with the intent of easing and regulating the usage of fiat-backed stablecoins in UK payment networks.
The paper states that in 2024, His Majesty’s Treasury plans to present explicit legislation to parliament that will make the Financial Conduct Authority (FCA) responsible for regulating fiat-backed stablecoins.
Stringent Compliance
Notably, the Treasury is considering making the local entities who are “arrangers of payment,” authorized by the FCA, accountable for ensuring that the foreign stablecoin complies with local regulations.
Stablecoins that are not backed by fiat currency, such as algorithmic stablecoins, will be prohibited from participating in regulated payment networks. Nonetheless, there is no outright prohibition in the agreement; rather, it reserves the right that “these transactions will remain unregulated.” Also, the Treasury views them as having the same regulatory framework as unbacked cryptocurrencies.
Furthermore, the FCA will be given the ability to require stablecoin issuers to place all reserve money in a statutory trust, as is the case with conventional stablecoins. In the event of a company collapse, the FCA’s guidelines will outline the redemption responsibilities under the trust. In the latter case, the Insolvency Act 1986 will apply to the stablecoin issuers based in the United Kingdom.
Moreover, in June 2023, the House of Lords (the upper house of the British parliament) enacted the Financial Services and Markets Act, the primary foundation for all types of cryptocurrencies. Also, the measure is called the FCMA 2023 throughout the Treasury paper.
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