By
Mayowa Adebajo
March 28th, 2023
The UK Treasury Department had earlier called for regulations for only those stablecoins that are pegged to a fiat currency.
For the first time, the UK Financial Services and Markets Bill (FSMB) contains the provision of regulations for stablecoins. The UK government rolled out its FSMB on the 30th of July, including its intention to regulate stablecoins.
According to Chancellor Nadhim Zahawi, who obtained power less than a month after Rishi Sunak’s resignation, stablecoins and “digital settlements assets” require regulation as a form of payment in the UK. The Chancellor added that the bill would also support creating Financial Markets Infrastructure Sandboxes to foster innovations. With these Financial Markets Infrastructure Sandboxes, firms will be able to test technologies and practices in the financial markets. Also, these will advance efficiency, the resilience of new products, and transparency.
Zahawi added that the regulations for stablecoins in the UK would help the government deliver its vision. He said the government’s vision is for an “open, green, and technologically advanced financial services sector” worthy of global competition.
UK Finance Bill Contains Stablecoins Regulations
The bill takes a step further in requiring that stablecoins issuers obtain a license from the Financial Conduct Authority (FCA). Notably, this applies to issuers of stablecoins that are used as a means of payment. The bill notes that government will consult the FCA, the Bank of England, and the PRA before making the regulations.
“As part of plans to ensure consumers are protected, the legislation includes measures that will safeguard access to cash for generations to come; powers to enable the Payments Systems Regulator to direct banks to reimburse victims of APP fraud; and established a new regulatory pathway for firms to be able to approve financial promotions, ensuring they better reflect FCA rules which state that promotions should be fair, clear, and not misleading.”
The Global Co-Head of Fintech at Linklaters, Harry Eddis, believes that stablecoin regulations in the UK are a significant milestone. He emphasized that it is “the first time the UK licensing regime will specifically cater for a type of crypto asset.”
Eddis continued:
“The limited scope of the new stablecoin regime minimizes the initial impact but a consultation later this year will explore a more dramatic extension of the regulatory net into the world.”
The UK Treasury Department had earlier called for regulations for only those stablecoins that are pegged to a fiat currency. The regulator has been pushing for stablecoins regulations following the recent crash of the TerraUSD. Additionally, the UK government said it would adopt existing laws on electronic money for the new stablecoin regulations. These existing rules will bring stablecoin under the FCA management.