UK Financial Watchdogs Publish Plans to Regulate Stablecoins

U.K. financial watchdogs shared plans to regulate stablecoins that could pose a risk to the financial system in discussion papers published Monday.

The plans focus on stablecoins pegged to the value of the British pound because the central bank considers these to be “most likely” to be used widely for payments, the Bank of England (BOE) said in a press statement on its paper.

“The discussion paper represents an exploratory phase in developing the new regime. After receiving and considering feedback from the industry on these initial proposals, the Bank will consult on its final proposed regime,” the BOE said.

The central bank will be regulating these “systemic stablecoins” and their issuers, while the Financial Conduct Authority (FCA) will oversee the crypto sector broadly, the U.K. government said in plans published last week. It also said legislation for fiat-backed stablecoins will be introduced early next year.

The BOE paper was published alongside another discussion paper by the FCA, and a letter by the country’s Prudential Regulations Authority (PRA) to deposit-takers.

The PRA expects lenders in the country to mitigate risks “of contagion,” it said in the letter, which clarified the protections available to traditional deposit takers differ from those available for stablecoin users.

“Contagion risks will be lower for stablecoins used in systemic payment systems regulated by the Bank, than for e-money or other regulated stablecoins captured by the FCA’s regime,” the letter said.

Meanwhile, the FCA clarified in its paper that stablecoin issuers will need to seek authorization to circuclate fiat-backed stablecoins in or from the U.K.

This is a developing story and will be updated.

Read more: U.K. Publishes Final Proposals for Crypto, Stablecoin Regulation

UPDATE (Nov. 6, 09:50 UTC): Adds FCA paper in headline and text, and adds detail throughout the article.