UK seeks to regulate stablecoins as a form of payment

By John Bassilios and Georgia Francis

The United Kingdom’s Treasury has introduced the Financial Services and Markets Bill. The Bill comes in the wake of guidance by the International Organisation of Securities Commissions and the Committee on Payments and Market Infrastructures on how to regulate systematically significant stablecoin arrangements in line with the Principles for Financial Market Infrastructures.

The Bill seeks to regulate certain types of stablecoins (those which derive their value from fiat currency) in a way which would bring it in line with existing financial services laws. Under the proposed legislation, issuing or facilitating the use of stablecoins would be regulated as a method of payment.

The Bill also extends the supervision of the Bank of England over digital asset service providers. In this way, the UK is attempting to mitigate the perceived notion that stablecoins are a threat to financial stability.

The Explanatory Notes which accompanied the Bill highlighted that the UK Government sought to implement the approach reflected by the Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) in their consultation report on the application of the Principles for Financial Market Infrastructures to stablecoin arrangements.

To effectively implement these changes, Financial Markets Infrastructure Sandboxes will also be implemented to facilitate testing of technologies and practices in isolated environments. According to the UK Treasury, this would allow for increased efficiency, transparency, and resilience of fintech products including crypto. The chancellor of the exchequer Nadhim Zahawi has commented that the proposed framework ‘reinforces the UK’s position as a leading centre for technology as we safely adopt crypto assets.’

Later in 2022, the UK Government also has plans to initiate a consultation on determining a regulatory approach to wider crypto-assets beyond stablecoins used for payments, including those primarily used as a means of investment (such as Bitcoin).

Similarly, US policymakers are also working towards agreeing on ways in which to regulate stablecoins, with a draft bill expected to be released imminently.