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

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

By Radhika Parashar | Updated: 1 June 2022 16:42 IST

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

Photo Credit: Pixabay/ Butti_s

British authorities will be upgrading general framework for dealing with shaky stablecoin projects

Highlights

UK legalised stablecoins in April
UK aims to ensure that stablecoin holders in the country are safe
UK will be bringing measures to tackle aftermath of failed stablecoins

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.

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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.

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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.

Economic Secretary @JohnGlenUK announced today that stablecoins will be brought into UK payments regulation.

This places the UK financial services sector at the forefront of technology, creating conditions for stablecoin issuers and service providers to operate and invest. pic.twitter.com/14SsIGW5bf
— HM Treasury (@hmtreasury) April 4, 2022

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.

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Further reading: UK, Cryptocurrency, Stablecoins

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More