Syed Rahman outlines the Financial Conduct Authority’s proposals
The Financial Conduct Authority (FCA) has proposed rules aimed at making sure stablecoins hold their value and that firms keep cryptocurrencies safe.
The regulator has said that it has drafted measures to safeguard the issuance of stablecoins - which are pegged to the value of fiat currencies - in an attempt to both help regulated stablecoins maintain their value and make sure that issuers provide information to customers on how the backing assets are being managed.
Under the FCA’s proposed rules, stablecoin issuers will have to back their stablecoins with high-quality, liquid assets. These assets should be equal in value to all outstanding stablecoins at all times. The backing pool assets will have to be certain low-risk instruments, such as on demand deposits and short-term government debt, which have a maturity of one year or less.
All stablecoin backing pool assets will be required to be segregated immediately and held on trust for the benefit of stablecoin holders. The issuer will act as trustee with a fiduciary duty to holders, with the issuer’s own funds kept separate from the backing pool assets at all times.
Insurance
This arrangement will work like an insurance policy for stablecoin holders. They will know that if their coin crashes, they can still make redemption requests through the FCA - and there will be funds ready to be paid out specifically for that eventuality.
The FCA believes that stablecoins’ use of blockchain technology could make payments and settlement more efficient. It has said it intends to work closely with the Bank of England on the proposed regime. The Bank has said it will publish a consultation on this later in the year.
The FCA’s proposals include a rule requiring firms providing crypto custody services to ensure they are secure and accessible at any time. It has said it is trying to prevent the failure of custodian firms, which can lead to customers losing assets; as was the case when Celsius Network LLC went bankrupt three years ago, owing $4.7 billion to clients.
The aim, according to the FCA, is to support innovation so that crypto firms in the UK can compete internationally, while also giving consumers protection. The proposal to have a designated separate asset pool held on trust for the benefit of stablecoin holders demonstrates that the FCA is in tune with consumer concerns.
Interested parties can respond to the FCA’s proposals until July 31. The regulator expects the final rules to be published in 2026. Its proposals come just over a month after HM Treasury's publication of draft legislation that aims to bring crypto trading firms into line with companies offering traditional financial products.
These latest developments can all be seen as building on the proposals the Treasury put forward in 2023 to create a financial services regulatory regime for crypto-assets. Those proposals, which were influenced by the huge collapse of FTX Trading, mean that all firms that provide crypto-asset activities must now be authorised and supervised by the FCA.
