The Financial Conduct Authority (FCA) in the United Kingdom is set to uphold its stringent approach to cryptocurrency regulation, particularly focusing on stablecoins, as outlined in a recent discussion paper. While the UK government aims to position the country as a crypto hub, the FCA remains committed to ensuring the highest standards in the sector.
Matthew Long, the Director of Payments and Digital Assets at the FCA, emphasized the regulatory body’s unwavering commitment to setting and maintaining high standards in the cryptocurrency space. In an interview with CoinDesk, he stated, “Ultimately, we’ll set the standards. Those that meet the standards will be admitted, and those that don’t meet the standards won’t get through, and we won’t apologize for those high standards.”
The FCA’s determination to maintain strict regulations stems from concerns over the potential misuse of stablecoins, including their use in money laundering, poor practices among issuers, and issues related to de-pegging, where a stablecoin loses its value relative to the asset it’s pegged to.
Customer protection at the forefront
Mr. Long emphasized that the primary goal of their regulatory efforts is to protect customers. He stated, “We’ve seen lots of things that we’re really concerned about, and at the end of the day, the person this actually affects is the customer.”
FCA’s proposed stablecoin regulatory framework will necessitate that prospective stablecoin issuers in the UK apply for authorization. To gain approval, issuers must demonstrate compliance with various requirements, including maintaining stable coin value and accurate record-keeping to ensure the appropriate amount of regulated stablecoin backing assets for consumers.
The FCA is set to collaborate closely with the Bank of England (BOE) to regulate stablecoins effectively. The BOE, in its own discussion paper released on the same day, outlined plans to become the primary regulator for stablecoins backed by the British pound that have the potential to threaten financial stability in the event of a collapse.
Matthew Long explained, “We will have to come together because we are looking at business conduct and the BOE is looking at bank and prudential.” This collaboration aims to ensure a coordinated approach to addressing the challenges posed by stablecoins.
The FCA will closely monitor the market for the emergence of “systemic” stablecoins that could have a significant impact on the broader financial system. Mr. Long added that both regulatory bodies plan to formalize their roles in a formal agreement.
To gather insights and feedback from the cryptocurrency industry, the FCA is actively seeking comments on the proposals outlined in its discussion paper. Engagement with industry stakeholders will occur through roundtables and other discussions.
Matthew Long stated, “There are a number of different ways that we can approach the problem, and working with industry helps us ensure that we create our high standards, avoiding money laundering but also supporting innovation.”
Enforcement measures
While the FCA will host meetings and conduct inspections to ensure firms comply with its rules, specific penalties for non-compliance have yet to be decided. Mr. Long noted, “There’s a number of things that we might consider, which are in legislation, which normally are fines, imprisonment, and other supervisory tools that we’ve got.”
The FCA’s commitment to maintaining rigorous standards in cryptocurrency regulation reflects the evolving landscape of digital assets and their potential impact on financial markets and consumers. As the cryptocurrency sector continues to grow and innovate, regulatory bodies like the FCA play a crucial role in safeguarding both the industry’s integrity and the interests of consumers.
The partnership with the Bank of England also signifies the importance of a coordinated approach to stablecoin regulation, ensuring the stability of the broader financial system in the United Kingdom. As the discussion paper seeks industry feedback, the cryptocurrency community will play an integral role in shaping the regulatory framework for stablecoins in the UK.
