Nov 7, 2023

Two U.K. financial watchdogs, the Bank of England (BOE) and the Financial Conduct Authority (FCA), have published their plans to regulate stablecoins.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Good morning and welcome back to first mover. All right, we are heading off to the UK where two financial watchdogs have published their plans to regulate stable coins. Joining us now to discuss the senior Associate at Interna International Law firm Clifford Chance, Laura Douglas. Laura, welcome to the show. Thanks very much, Jen. Great to be with you. All right. So we have these plans to regulate stable coins that have been published. Do you specialize in advising financial institutions and other market participants on financial market regulation? What do you make of these plans? Yeah. So I I think this is really the next stage of um the U K's plan to regulate stable coins and crypto assets more generally. And I think it's something the industry has been waiting for for for quite some time. Um So maybe just to take a step back and put these new publications in context, um We've had various consultations over the past couple of years looking at, you know, what a regulatory regime for stable coins could look like in the UK. Um but actually the, the framework for, for the regime was laid in the summer in the Financial Services and Markets Act 2023 which became law um earlier this year. Um Then at the end of October, we saw Treasury so effectively the UK government coming out with its, you know, um latest publications about how it intends to create that, that regulatory framework within which then um these new publications from the regulation letters from the Bank of England and the FC A will sit. So there are a few layers to this. Um And I think this is really what the industry has been waiting for is not just to see, you know, what does the shape of the framework look like, but how are the regulators going to approach regulation of staple coins? So looking at this uh from the perspective of a Stablecoin issuer, first of all, how likely is this uh to actually be implemented? Second of all, what changes in their processes that, that make it compatible with uh UK law, would that actually happen? Yeah. So that's a really interesting question and I think it will really depend on where you are. Um So the Bank of England um and, and their publication, they're really focused on systemic stable coins in the UK. Um And, and they're focused on uh Sterling denominated stable coins. And so actually, if you're a stablecoin issue of another type of stablecoin, um it at least at the moment, it's quite unlikely that the Bank of England's proposals would necessarily impact you, but where the impact might be felt is more on the, um, the financial conduct authority side. Um And they're looking at actually, are you within the scope of, um, you know, payments regulation? Um So what treasury is saying is that actually if you're, if you're a UK issuer of stablecoins, then you may need to be subject to a new regulatory regime. Those kinds of stable coins then would be regulated, types of payment instruments in the UK. But even, you know, things like existing us denominated stable coins, they might not be directly regulated. Um So the issuer may not be directly regulated. Um but there's a, there's a line in the Treasury um paper that came out at the end of October which says that the government is still thinking about how do they enable use of those kind of stable coins in payment chains. But without necessarily that real extra territorial reach of, of trying to, you know, um go go into the issue of, of some of those non UK um non sterling denominated stable coins. So I think the detail is still to be fleshed out, but that's the big picture of actually, it's going to really be all about scoping and not everyone's going to be caught by every element of the regime. I mean, it sounds like ba based on what you're saying here, II I, it sounds like barely anyone currently that's a major player is going to be affected by this because either they're not domiciled in the UK. Um, or I, I mean, I guess British Virgin Islands, but, I mean, I don't think that will necessarily, I don't know if that will affect them. But second is, uh, they, the, uh, they're not usually, uh, Sterling Sterling denominated. I mean, these are, they're mostly us dollar denominated. Uh it, so it really is, this is, this is sort of a I, I guess uh uh just kind of like window dressing here. Is it really going to do anything? So I think that there will be impacts potential, well, particularly for players that are then offering sort of payments and payment related services in the UK and to UK and users. And I think the question is going to be, where is that sort of, you know, who are the gatekeepers to the UK regulatory regime here? Um And what the treasury paper says is that, you know, UK government wants to accommodate um fiat back stable coins that are not issued um in or from the UK IE oversee staple coins, a lot of those that exist today. So they want to accommodate use of those for, for UK payments, for goods and services in the real economy. But they're going to look at what that approach should be, you know, is it the arranger of the payment rather than the issuer who then becomes caught by the regulatory regime. And I think that's one of the pieces we don't yet have all of the details for. Um So it's one that we still need to um sort of watch this space, I would say from a prudential and sort of financial stability perspective, the Bank of England does say that they don't think that non sterling stable coins are suitable for kind of systemically important. Um you know, shouldn't grow to that level of being systemically important um particularly for retail payments in the UK, which is what they are focused on in, in that latest publication. Um So it's not to say it's just window dressing, but I think the UK is setting out really what do they want to capture in scope of the UK regulatory regime? Acknowledging this is a global, you know, kind of phenomenon, a global sort of um you know, um industry at the moment. Um But where should the, the limits of the UK regulatory regime? Um sort of start? L all right. And laura very quickly before we wrap up the show here, if you were advising a Stablecoin issuer who is not based in the UK and is denominated by us dollars, but who has UK clients? What would you tell them about this proposed regulation? Is it just business as usual? Right. Well, well, I think, I mean, one of the key things about the UK regulatory regime is um, actually the financial promotions element and this is about marketing. Um, and so one of the things that has changed recently and, and this is the case already today is that crypt, sort of all types of crypto assets that are not regulated at the moment in the UK, which, you know, is pretty much any, any kind of crypto assets. Um, other than things that are like, you know, security tokens, um, if you're not authorized in the UK, you're not able to market or make financial promotions to, to UK users unless you fall within um certain limited sort of safe harbors or carve outs so you could get a UK authorized firm to approve your promotions. Um It might be possible to rely on an exemption, for example, um for dealing with, you know, um particularly sophisticated or kind of investment professionals. Um But that's really going to be where the UK regime starts to bite, I think for a loss of overseas firms. Laura, thanks so much for joining the show. It was a pleasure having you on again. Pleasure. Thank you. That was senior associate at Clifford Chance. Laura Douglas.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.