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U.K. regulations will oversee the use of fiat-backed stablecoins. FCA-authorized payment arrangers will certify overseas stablecoins meeting U.K. standards.
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U.K. Stablecoins Regulation regulates UK-issued fiat-backed stablecoins under the Right of Abode (RAO) to enhance security and custodial practices.
The United Kingdom is taking a significant step towards reinforcing its crypto industry by implementing new regulations. This move will empower authorized financial firms to collaborate with overseas stablecoins, particularly those backed by fiat currencies and used for payments.
Meanwhile, under the supervision of esteemed bodies like the Bank of England, the Financial Conduct Authority (FCA), and the Payment Systems Regulator (PSR), these regulations aim to protect customers while minimizing potential risks in the United Kingdom.
Let's delve deeper into U.K. stablecoin regulations and see how they will be regulated based on the new regulations.
The U.K. recently announced the introduction of new regulations that will enable authorized financial firms to engage in partnerships with overseas stablecoins.
Thus, with a primary focus on fiat-backed stablecoins used for payments, this new regulatory framework will serve two essential purposes.
Regulating fiat-backed stablecoins in payment chains
The newly proposed regulations will govern fiat-backed stablecoins within payment chains. Emphasizing customer safety, the government is exploring options to accommodate overseas stablecoins for U.K. payments.
To ensure secure transactions, payment arrangers authorized by the FCA will certify that these stablecoins meet the required standards for use in U.K. payment chains.
Moreover, the new regulations also extend to cover the issuing and custody of fiat-backed stablecoins within the U.K., regardless of their intended purposes.
This means that firms involved in issuance and custody activities related to UK-issued fiat-backed stablecoins will be subject to the rules and guidance provided by the FCA.
Amendments to the PSR 2017 will oversee payment services concerning these stablecoins, focusing on authorized or registered payment institutions.
FCA Unveils Further Regulations for U.K. Stablecoins
In addition to the above, the FCA plans to regulate the issuing and custody of UK-issued fiat-backed stablecoins for use within U.K. payment systems for all individuals.
However, stablecoins utilized in cryptocurrency exchanges will fall under phase 2 of the crypto asset regulation. While other types of stablecoins not backed by fiat will still be permitted for payments, they will not be subjected to law.
Moreover, the FCA also acknowledges the importance of informing consumers about unregulated crypto assets used in payments, and disclosure rules are being considered to address this concern.
The U.K. Stablecoins Regulation intends to encompass the issuing and custody of UK-issued fiat-backed stablecoins within the Right of Abode (RAO).
Thus, by regulating this activity as a new undertaking under the RAO, the government aims to enhance the security and custodial practices of fiat-backed stablecoins and security tokens.
The RAO's scope will expand in phase 2 to include additional crypto assets, reflecting the government's commitment to staying at the forefront of crypto regulatory advancement.
The U.K. Government's Response to Crypto Regulation in 2024
In a consultation paper released earlier this year (2023), the U.K. government sought recommendations on regulating the crypto industry.
In response, the government has confirmed plans to regulate the cryptocurrency sector and envisions the introduction of formal legislation by 2024.
Meanwhile, the proposal aims to subject several crypto asset activities to the same regulations governing banks and other financial services firms. This move demonstrates the government's dedication to positioning the U.K. as a global hub for cryptoasset technology.
Conclusion
The U.K.'s commitment to implementing regulations for stablecoins and the broader crypto industry underscores its dedication to fostering growth while upholding customer protection and reducing risks.
Thus, by introducing this regulatory framework and working collaboratively with authorized financial firms, the U.K. aims to provide stability and security in the rapidly evolving landscape of digital payments.