In the rapidly advancing world of digital currencies, UK regulatory authorities are being urged to refine their approach to stablecoin regulation. The Bank of England (BoE) and the Financial Conduct Authority (FCA) presented their initial regulatory frameworks last November, aimed at overseeing stablecoins—digital assets pegged to traditional currencies or other stable assets. On the other hand, industry leaders’ concerns have been expressed, which is about the existing proposals.

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• UK industry leaders call for revisions to the Bank of England and Financial Conduct Authority’s stablecoin regulatory proposals.
• Concerns were highlighted over how the regulations could restrict stablecoin issuers’ revenue streams and limit backing asset options.
• Debate stirs around the exclusion of stablecoin providers from the Financial Services Compensation Scheme, seeking the balance between protection and market maturity.

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UK Financial Regulators Challenged to Amend Stablecoin Regulatory Proposals

Both regulatory bodies—the FCA and the BoE—have outlined their roles in managing the stablecoin space. The FCA’s plans cover the issuance, operation, and use of these cryptocurrencies as payment methods, while the BoE is preparing to regulate those stablecoins that might influence the UK’s financial system in the event of an issuer’s insolvency.

A primary concern for industry groups is the disparity in how stablecoin operators could generate revenue. The FCA’s guidelines would allow issuers to earn interest on the reserves backing their stablecoins, whereas the BoE’s recommendations would compel systemic issuers to hold reserves exclusively in central bank deposits, hindering their ability to accrue interest. This has led Paul Worthington, the head of regulatory affairs at Innovate Finance, to the opinion that note issuers may be exposed to the risk of becoming systemic as they develop and grow.

The debate extends to the types of assets deemed suitable to back stablecoins. The FCA’s conservative stance limits acceptable reserves to short-duration government debt and cash deposits. In contrast, industry advocates are pushing for a broader scope that would permit a more varied and secure reserve base, aligning with practices in other jurisdictions like Singapore.

Another element that is explicitly under study in the framework is the FCA’s decision to omit stablecoin providers from the Financial Services Compensation Scheme, which guarantees customers of bankrupt financial organizations. The debate on this exclusion has varied views, some propose that stablecoins holders should be treated as other financial consumers, while others are emphasizing the need to be careful and wait for the market to mature.

​ This invitation goes to our readers who are part of these discussions as we issue our newsletter containing the latest insights on the ever-changing terrain of stablecoins regulations. Keep calm and stay updated because of your daily comprehensive updates and analyses.

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