The United Kingdom’s Financial Conduct Authority (FCA) has taken a significant step towards regulating the cryptocurrency landscape through its recent request for public feedback on proposed regulations for stablecoins and cryptocurrency custody services. This initiative is viewed as a milestone in the ongoing journey of crypto regulation in the UK.
In a press release issued on May 28, the FCA highlighted that the draft rules are informed by previous industry feedback and roundtable discussions. David Geale, the executive director of payments and digital finance at the FCA, emphasized the agency’s commitment to fostering innovation while ensuring consumer trust and market integrity. “At the FCA, we have long supported innovation that benefits consumers and markets. At present, crypto is largely unregulated in the UK. We want to strike a balance in support of a sector that enables innovation underpinned by market integrity and trust,” he stated.
The FCA’s proposals also indicate a collaborative approach with the UK’s central bank, as the Bank of England plans to issue a complementary consultation paper focused on stablecoins expected to operate at a systemic scale. Sarah Breeden, deputy governor of the Bank of England, has indicated that this paper will provide more insights into the stablecoin regulatory framework later this year.
Ensuring Stability in Stablecoins
The FCA aims to establish regulations that ensure stablecoins maintain their value and provide clear information to customers regarding the management of backing assets. The authority has proposed that stablecoin issuers appoint independent third-party custodians for reserve assets. According to the proposals, issuers would be required to allow holders to redeem qualifying stablecoins at par value with their reference currency, ensuring high standards of liquidity and consumer protection.
“We propose to require issuers to provide holders with the right to redeem qualifying stablecoins at par value with the reference currency, regardless of the value of the backing assets portfolio,” the FCA stated.
As articulated by Breeden, these regulations are part of a broader initiative to develop a robust stablecoin regime in the UK.
New Crypto Custody Rules
In addition to stablecoins, the FCA has outlined new requirements for firms offering crypto custody services. These rules aim to enhance security measures for user assets and guarantee that they can be accessed whenever necessary. The proposals stipulate that firms responsible for safeguarding consumers’ cryptocurrencies should implement effective security protocols to minimize risks associated with crypto asset management.
“The FCA’s proposals would require firms providing crypto custody services to ensure that user assets are effectively secured and can be accessed at any time,” highlighted the regulator.
Furthermore, these initiatives are designed to mitigate the risks associated with the potential failure of crypto firms in both the custody and stablecoin sectors. The FCA’s efforts come in light of Chancellor of the Exchequer Rachel Reeves’ recent announcements regarding a comprehensive regulatory framework aimed at positioning the UK as a leader in the cryptocurrency space.
As the landscape for cryptocurrency regulation continues to evolve, the FCA’s proactive approach to seeking industry input reflects a balanced attempt to promote innovation while safeguarding the interests of consumers and maintaining market integrity.
