The authorities issued discussion papers on stablecoin regulation and custody in November. Responses to discussion papers on stablecoin regulation in the United Kingdom were initially due on February 6, but the Bank of England (BOE) has extended the comment period on its paper to the morning of February 12. The deadline for comments on the Financial Conduct Authority’s (FCA) discussion paper remains February 6. The Association for Financial Markets in Europe (AFME) filed comments with the FCA on time.
The discussion papers were made available on November 6 as part of a “joint publication package” that was viewed as the first move towards complete crypto-asset regulation. Although the papers are topically linked, they take diverse approaches to the topic.
The BOE primarily addressed issues concerning the usage of a sterling-backed retail-focused stablecoin in systemic payment systems, including transfer functionalities and wallet provider requirements. The FCA discussion paper looked at a variety of stablecoin use scenarios, focusing on auditing and reporting, prudential requirements, backing, and custodianship. It emphasized the concept of “same risk, same regulator outcome.” The FCA will also regulate custodianship, while the BOE acknowledged that it may impose rules in addition to the FCA’s in circumstances like as off-chain transactions, anti-money laundering, and Know Your Customer requirements for unhosted wallets. James Kemp, AFME’s managing director of technology and operations, lauded the UK proposals as a “positive step.” He was concerned about the treatment of security tokens. According to the FCA, security tokens are “crypto-assets which already meet the definition of a specified investment under the RAO the Financial Services and Markets Act 2000 through the Regulated Activities Order] and are therefore already subject to regulation.” Kemp stated, “Security tokens are inherently securities and should be treated as such throughout their lifetime.” To keep markets running properly, they must not be subject to the FCA’s proposed separate regulatory treatment and territorial scope for custody.”