Will ‘Stablecoins’ now fall under UK regulators’ purview?

Sahana Kiran
Source – Pixabay

Following the downfall of Terra and its algorithmic stablecoin TerraUSD, regulators from across the globe were alerted. The limited volatility that these assets offered did not pose a threat earlier. However, things took a whole new turn, after the Terra fiasco. Countries like South Korea and others have already started looking into amending existing regulations while including stablecoins. The UK seems to be following suit.

As a bill proposed to sweep stablecoins under regulatory purview, sits in Parliament waiting to be debated in September, crypto advocates speculated about the possible rules that could hit the market.

The UK has been trying to emerge as a prominent hotspot for crypto. Therefore, the latest laws are expected to align with consumer protection while keeping in mind innovation.

Elaborating on the same, Lisa Cameron, a member of Parliament and chairwoman of the cross-party group for crypto said,

“I see this as a key piece of legislation for financial services, which I hope can allow us to make the most of the opportunities of Brexit and to establish an approach to crypto regulation that is right for the U.K. By bringing stablecoins within the scope of regulation, the bill paves the way for further adoption in the U.K., and this will be a key area of focus for parliamentarians as part of our inquiry into the wider sector.”

It should be noted that cryptocurrencies are categorized as “digital settlement assets,” or DSAs. The approval of the bill will drive the UK Treasury to oversee the whole ecosystem while delegating duties to the Bank of England [BoE], Financial Conduct Authority [FCA], and Payments Systems Regulator [PSR].

How will this be different for stablecoins compared to the EU’s MiCA?

As mentioned earlier, the downfall of Terra had a great impact on regulators. The European Union has been working on the Markets in Crypto Assets [MiCA] framework since 2020. This, however, garnered momentum only recently. Similar to MiCA, UK’s latest bill aims to target systemic stablecoins. This means that they would govern stablecoins that had the ability to disrupt the existing financial stability.

Matthew Nyman, a lawyer at the CMS law firm in London noted that the bill had “zero explicit regulation” with regard to crypto. He further suggested that the new measure does not specify if or how a DSA service provider may operate, or how that provider should be authorized.

In addition to this, the PSR believes that the BoE would play a major role in regulating stablecoins. The regulator said,

“The BoE will need to authorize any stablecoin, and there are due processes that firms will need to follow before being given authorization.”

It should be noted that the PSR would also be involved in the planning of a framework on how to regulate stablecoins and other DSAs. The FCA has already been overseeing the UK crypto scene.

So when will this bill see the light of the day?

While the bill will hit the Parliament for a debate sometime in September, the UK government is still on the hunt for its Prime Minister. Since the time Boris Johnson resigned as Britain’s Prime Minister, the focus has been on finding a replacement. Therefore, Ryan Shea, crypto economist at a Paris-based crypto index platform, Trakx said,

“Until we get a new [prime minister], Parliament is never going to pass anything of serious magnitude, so we’re effectively on pause until then.”

Therefore, the bill could take longer than expected to turn into law.