BoE and UK FCA set out approach to joint regulation of systemic stablecoin issuers

The Bank of England (BoE) and the UK Financial Conduct Authority (FCA) have published their joint approach document on the regulation of systemic stablecoin issuers. Under the regime, the FCA will regulate all UK-issued qualifying stablecoins and, in future, their use in payments. However, HM Treasury (HMT) may bring a stablecoin issuer within the joint regulatory framework of the BoE and the FCA by recognising the issuer as systemic. The consultation builds on the BoE's recent proposals in its June publication and the FCA's final stablecoin issuance rules in PS26/10 (please see Fintech section for more on this).

For jointly regulated systemic stablecoin issuers, the regulators are splitting supervisory responsibilities across three key areas:

• Areas where the FCA is the lead authority, and where the FCA rules apply—examples include the consumer duty, conduct and the market abuse regime.
• Areas of overlapping responsibility, where both the FCA rules and the BoE's code of practice (which is currently still in draft) apply—examples include operational resilience, record keeping, and issuance, legal claim and redemption.
• Areas where the BoE is the lead authority, and where the BoE's code of practice applies—examples include backing assets, capital and reserve requirements, safeguarding, and failure arrangements. In the case of overlapping responsibilities, the regulators expect to be able to manage these with tools they have experience using, including coordination of supervision and escalation mechanisms.

The approach document also covers transition arrangements for FCA-authorised stablecoin issuers which are recognised by HMT as systemic and brought into the joint regulatory framework, and the "step-up approach" for firms which are recognised as systemic at launch (SaL) which will permit such firms to hold up to 95% of their backing assets in short-term sterling-denominated UK government debt securities, with the remaining 5% held in unremunerated central bank deposits. Proportionate capital and reserve requirements will also apply.

The deadline for comments is 30 September. The BoE will publish a summary of responses and consider whether updates are needed to the existing relevant frameworks (for example, its Approach to FMI Supervision). The regulators may publish further explanation of how they will regulate together, and once the BoE's rules are finalised, the FCA will consult on FCA rule disapplication for systemic stablecoin issuers.

The approach document also references the BoE and FCA's update that the Digital Securities Sandbox will permit the use of certain stablecoins for securities settlement. This is covered as a separate update in the Fintech section.

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