UK Regulators to Bring Risk Management Laws In Case Stablecoin Projects Fail

The government of the UK has released a consultation paper outlining laws to mitigate risks associated with stablecoin projects that fail. The development comes after the recent crash of the Terra ecosystem. Now that UK has recognised stablecoins as a legitimate payment alternative, it aims to safeguard its citizens against financial risks that are generally associated with the crypto industry. As part of its plans, UK will be granting more control to the Bank of England (BoE) to handle the issuers of failed stablecoins.

“Since the initial commitment to regulate certain types of stablecoins, events in crypto asset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity, and financial stability risks,” UK's Treasury said in an official post, released this week.

The rules will include amendments in UK's Financial Market Infrastructure Special Administration Regime, also known as FMI SAR.

The FMI SAR will be upgrading its general framework for dealing with shaky stablecoin projects.

In case a stablecoin project threatens the country's financial stability, the FMI SAR will be able to access the necessary insolvency arrangements.

“The failure of a systemic digital settlement asset (DSA) firm could have a wide range of financial stability as well as consumer protection impacts. This could be both in terms of continuity of services critical to the operation of the economy and access of individuals to their funds or assets. Further work will be required to consider whether it would be appropriate to put in place a bespoke legal framework for the failure of such firms and, if so, its design,” the post by UK's Treasury added.

In April, UK added stablecoins to its financial ecosystem.

Stablecoins, like Tether and Binance USD are crypto assets, pegged to reserve assets like gold or fiat currencies, so even if the crypto market is down, they can still see gains due to the performance of its underlaying asset.

The British government had launched a consultation on crypto assets and stablecoins last year, the outcomes of which were announced at the Global Finance Summit by UK's Economic Secretary, John Glen.

Amid the expanding crypto culture in the UK, its financial watchdogs have constantly expressed concerns about the economic instability that may seep in as an aftermath of UK's mass exposure to cryptocurrency.