The Financial Conduct Authority (FCA) and the Bank of England (BoE) have published new proposals on their approach to regulating a new digital currency, stablecoins.

Both the regulator and the central bank are requesting feedback on their proposals, which cover any payment systems in the future that might use stablecoins in the UK at systemic scale.

Stablecoins, a new type of digital asset which aim to maintain a stable value, could be used for retail payments in the future.

The regulatory approach put forward by the FCA and BoE aims to harness the potential benefits stablecoins could provide to UK consumers and retailers, in particular by making payments faster and cheaper. The proposals to regulate stablecoins aim to protect consumers, prevent money laundering with a robust set of rules and to safeguard financial stability.

An FCA discussion paper has explored the proposed regulation around issuing and holding stablecoins that claim to maintain a stable value relative to a fiat currency by holding assets denominated in that currency.

“Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely,” executive director, consumers and competition at the FCA, Sheldon Mills.

“Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives.

“We look forward to continuing our engagement with Government, our partners and the wider crypto industry as we move forward with the Government’s first phase in developing the UK’s crypto regulation regime and beyond.”

A discussion paper from the BoE has also outlined how it would regulate operators of systemic payment systems using stablecoins – payments systems which, if widely used for retail payments in the UK, could otherwise pose risks to financial stability.

The Bank would also regulate other entities providing services to these payment systems, such as stablecoin issuers and wallet providers, where they could otherwise pose financial stability risks.

Deputy governor for financial stability at the BoE, Sarah Breeden, added: “Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place.

“Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.”

The FCA and the BoE have announced they are welcoming feedback from the public and industry by 6 February 2024.

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