HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.
The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.
The Policy Paper sets out HM Treasury's proposals to:
HM Treasury expects to lay secondary legislation before Parliament by early 2024, subject to Parliamentary time. The proposed fiat-backed stablecoin regulatory framework constitutes "phase 1" of HM Treasury's broader digital asset regulatory agenda. Phase 2 concerns the regulation of a broader set of cryptoasset activities and is discussed in HM Treasury's separate consultation response on the future regulatory regime for cryptoassets.
HM Treasury is empowered under the FSM Act to apply the existing special administration regime for financial market infrastructures to recognized DSA payment systems or service providers in the event they fail. HM Treasury has published a separate consultation response on its proposals for this regime.
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