The UK government has published a policy update outlining a phased regulation of fiat-backed stablecoins in the country. The HM Treasury will focus on two areas – their use in payment chains and issuance and custody “in or from the UK”, irrespective of a fiat-backed stablecoin’s uses.

In the publication, the HM Treasury explains the expected regulatory regimes of the Financial Conduct Authority (FCA), the Bank of England (BoE) and the Payment Systems Regulator (PSR). The document states that the regulatory landscape will bring certain (fiat-backed) stablecoins within the remit of the Bank of England, Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) with the aim of minimising potential for customer harm and mitigating the conduct, prudential, and financial stability risks arising from those stablecoins, particularly when used for payments.

The government expects the FCA, BoE and PSR to work within statutory objectives that align with the overall stablecoin regulation framework, with regulators coordinating for a clear approach. The HM Treasury secondary legislation via parliament will bring stablecoins within the FCA’s regulatory perimeter. There will also be co-responsibility on the FCA and BoE to supervise a firm recognised as systemic. The government expects that the Bank of England should act as the lead prudential regulator and be able to supervise such an entity, while the firm continues to also be regulated by the FCA for conduct.

The UK’s legislation on crypto is set for 2024, after the Financial Services and Markets Act 2023 passed into law in June to allow for the treatment of crypto as a regulated activity. The policy update looks to prepare the various government agencies and regulators for this.