• The HM Treasury today published a policy update to the country’s crypto regulation.
• In it, the UK government has outlined the FCA’s regime in stablecoin regulation.
• The Bank of England (BoE) and the Payment Systems Regulator (PSR) will also have a role.

The UK government has published a policy update outlining a phased regulation of fiat-backed stablecoins in the country.

In terms of regulating activities around stablecoins, the HM Treasury will focus on two areas – their use in payment chains and issuance and custody “in or from the UK.” The latter will be irrespective of a fiat-backed stablecoin’s uses, that’s whether for payments, as a settlement asset, or as a store of value.

FCA, BoE role in stablecoin regulation

In the publication, which was made public on Monday, the HM Treasury explains the expected regulatory regimes of the Financial Conduct Authority (FCA), the Bank of England (BoE) and the Payment Systems Regulator (PSR).

“The regulatory landscape will bring certain (fiat-backed) stablecoins within the remit of the Bank of England, Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR), which altogether will aim to minimise potential for customer harm and mitigate the conduct, prudential, and financial stability risks arising from those stablecoins, particularly when used for payments,” the document reads in part.

The government expects the FCA, BoE and PSR to work within statutory objectives that align with the overall stablecoin regulation framework, with regulators coordinating for a clear approach.

While the HM Treasury secondary legislation via parliament will bring stablecoins within the FCA’s regulatory perimeter, there’s co-responsibility on the FCA and BoE to supervise a firm recognised as systemic.

“In a scenario where an FCA authorised fiat-backed stablecoin firm is recognised as systemic by HM Treasury, and so should be supervised by the Bank of England, the government expects that the Bank of England should act as the lead prudential regulator and be able to supervise such an entity through Part 5 of the Banking Act 2009, while the firm continues to also be regulated by the FCA for conduct,” the document states.

UK’s legislation on crypto is set for 2024, after the Financial Services and Markets Act 2023 passed into law in June to allow for the treatment of crypto as a regulated activity. The latest policy update looks to prepare the various government agencies and regulators for this.