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UK Proposes Regulation for Stablecoin Payment Systems
As the UK pushes further towards positioning itself as a global crypto hub and center of financial services, proposals asking for feedback from the Bank of England and the Financial Conduct Authority are paving the way for stablecoin regulation that should see the fiat or commodity-pegged digital currencies grow in popularity and use as standards and protections are ensured for businesses and users.
In papers from the Bank of England (Regulatory regime for systemic payment systems using stablecoins and related service providers) and the FCA (Regulating cryptoassets Phase 1: Stablecoins), the two entities made a number of observations about the standards required for stablecoins to see proper use. These include:
- The assertion that unbacked assets are not suitable for widespread retail payments in the UK (and that deposits held at the Bank of England would be necessary for backing suitable stablecoins),
- The idea of ‘same risk, same regulatory outcome’ should be applied where possible,
- The implementation should adopt a flexible approach to accommodate different business models,
- There should be an entity with an overview of the entire payment chain process that should monitor and control the risks associated with the system,
- A legal entity or natural person should be set up to be held accountable and responsible for end-to-end risk management in the payment system and compliance with regulation.
Comments from representatives in a press release for the proposals highlighted the improved speed and efficiency of stablecoin payments, and the potential for improving the ways in which payments are made, whilst highlighting the necessity of safeguards. It shows that the regulators are aware of the benefits of blockchain-based technology and are preparing for widespread use to be adopted.
As the documents are consultation papers, the Bank of England and FCA have set a deadline of the 6th of February 2024 for the acceptance of responses (a year after the Bank of England consultation on the digital pound, results of which are due to be shared soon). Regardless of the fine print of the end result of this process, it seems clear that regulatory measures broadly similar to existing standards are under discussion through the ‘same risk, same regulatory outcome’ approach, which means that those individuals and organizations that wish to take advantage of the benefits of stablecoins should prepare to implement and undertake KYC and AML procedures (as noted in both documents) as normal for those involved with financial services.
For those who are intending to engage with the wider-scale adoption of stablecoins, whether now or later, Blockpass provides all kinds of regulatory products, including KYC and AML solutions, which will allow crypto and non-crypto businesses to comply with upcoming regulations in the least intrusive and most effective way. In addition to the basic requirements that are applicable to all financial services, Blockpass has also develops, and continues to develop, solutions tailored to the cryptosphere, as can be seen in the launch of the Unhosted Wallet verification solution, and developments for other financial regulations, such as KYB solutions.
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By Matthew Warner