Payments in 2024 #4 – Coin money: Fitting stablecoins into regulation

Whether they see stablecoins as a potential competitor or new product line, payments firms have a stake in how stablecoins and similar digital assets are regulated.

Strong and stable regulation?

Regulating stablecoins is Phase 1 of the UK’s strategy to form a regulatory regime for cryptoassets. The government promises to bring forward legislation to do this in early 2024.

This legislation is keenly awaited. It is expected to amend the Payment Services Regulations and Regulated Activities Order to draw in activities relating to fiat-backed stablecoins. Hopefully this will clarify the legal boundaries between the future stablecoin regime and existing regimes, such as for e-money.

Attention will then turn to how the FCA proposes to regulate these stablecoins. The FCA has set out its thinking so far in a discussion paper. A separate paper from the Bank of England considers the future regime for systemic payment systems that use stablecoins. The regulators plan to release more detail via consultations in the second half of the year.

MiCA drop

While the parameters of the UK regime are still emerging, the focus in the EU has moved to implementation. Several years in the making, the EU’s regulation on Markets in Crypto-Assets starts to apply this year.

The first provisions of MiCA to apply will relate to stablecoins, described in the legislation as e-money tokens and asset-referenced tokens. The rules for EMTs and ARTs kick in from 30 June 2024. The remainder of MiCA generally applies from 30 December 2024, although cryptoasset service providers may be able to benefit from transitional measures.

MiCA is not the only EU regulation for crypto firms to note. The recast Funds Transfer Regulation implements the “travel rule”, requiring service providers to share more information with cryptoasset transfers about their originators and beneficiaries. DORA applies to MiCA-authorised cryptoasset service providers and ART issuers, as does the Commission’s draft open finance regulation (FIDA). Regulation is a slippery slope.

Date for the diary: 6 February 2024 – the deadline for responding to the FCA and Bank of England discussion papers on stablecoins.

This is the fourth in a series of five blogposts looking at the outlook for payments regulation in the EU and UK. Read the Fintech and Payments section of our Financial Regulation Legal Outlook 2024 for more.