The Bank of England and the Financial Conduct Authority have published a joint paper setting out their proposed approach to regulating systemic stablecoin issuers, the latest step in the development of a regulatory framework for the digital assets that are increasingly integrated into the mainstream financial system.
The paper proposes that systemic stablecoin issuers — those whose coins are used widely enough to pose a risk to financial stability if they were to fail — should be regulated by the Bank of England, with the FCA responsible for regulating the broader stablecoin market. The Bank would apply standards similar to those that apply to other systemic financial infrastructure, including requirements for capital, liquidity, governance and risk management.
The paper is significant because it represents the first concrete proposal for how the UK's financial regulators intend to apply their existing regulatory philosophy to a technology that does not fit neatly into existing categories. Stablecoins are simultaneously a means of payment, a store of value and, in some cases, an integral part of decentralised financial systems. The regulators' challenge is to develop a framework that addresses the risks without stifling innovation.
The paper acknowledges that the regulatory framework will need to evolve as the stablecoin market develops and as the technology that underpins it changes. The regulators have invited comments on the proposals and expect to publish final rules by the end of the year. The framework is expected to be operational by mid-2027.
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