The UK’s finance ministry unveils proposed crypto regulations to address significant stablecoin failures
In a consultation paper released on Tuesday, the UK Treasury introduced a comprehensive set of crypto regulations aimed at adjusting current rules to manage major stablecoin failures and protect investors holding stablecoins.
After the downfall of the algorithmic stablecoin TerraUSD (UST), which resulted in significant losses within the crypto market, the government suggests modifying existing laws to grant the Bank of England increased authority to oversee the management of faltering stablecoin initiatives.
The Treasury commented,
“Recent events in the cryptoasset markets underscore the necessity for suitable regulation to reduce risks related to consumer protection, market integrity, and financial stability,”
They warned that the collapse of an essential stablecoin might lead to
“a broad array of impacts regarding financial stability and consumer protection.”
The Treasury’s report recognizes the crucial role of stablecoins in fostering innovation but also highlights their potential to disrupt financial stability in the event of systemic failures. Specifically, the Treasury urged for:
- The Financial Market Infrastructure Special Administration Regime (FMI SAR) to be designated as the primary authority for tackling possible systemic failures of digital settlement asset (DSA) firms, which encompass stablecoin issuers, wallet providers, and third-party payment services.
- An enhancement of the FMI SAR’s role to manage the prompt return or transfer of customer funds should a DSA firm fail.
- Increased powers for the Bank of England to guide administrators and establish regulations supporting the FMI SAR.
- A requirement for the Bank of England to engage with the nation’s Financial Conduct Authority before pursuing an administration order or directing administrators if there is potential regulatory overlap.
The proposed changes indicate the government’s intent to amend the FMI SAR to cover risks that may arise from failures of stablecoin issuers not recognized as banks.
The FMI SAR would serve as the primary framework for managing failed stablecoin projects. Therefore, if a stablecoin collapse is deemed a threat to financial stability, the issuing project will be subject to special insolvency protocols. Moreover, the revised legislation would mandate that the interests of distressed investors take precedence.
It is abundantly clear that algorithmic crypto-backed stablecoins, which rely on volatile underlying assets for their algorithms and reserve adjustments, are considerably less stable compared to collateralized stablecoins like
e-money.com’s lineup of European stablecoins and the Paxos Dollar, both of which are fully backed by cash and offer transparency.
Stablecoins, which are crucial in the crypto market, are increasingly recognized for their potential in payments, with consumers seeking certainty and regulators demanding transparency, making stablecoins a highly useful asset.
A public consultation on these proposals is currently taking place, closing on August 2.
Disclaimer:
GlobalStablecoins.com serves as an informational resource offering news regarding coins, blockchain enterprises, blockchain products, and blockchain events. This information should not be interpreted as investment advice. Consult with a financial advisor before investing in an ICO, cryptocurrencies, crypto assets, security tokens, utility tokens, exchange tokens, global stablecoins, stablecoins, or eMoney tokens. GlobalStablecoins.com bears no responsibility, directly or indirectly, for any loss or damage experienced, alleged, or otherwise, in association with the reliance on any content accessed on the website.
Affiliate Disclosure / Sponsored Posts:
If a sponsored post mentions any crypto project, we advise our readers to perform due diligence before taking any further actions. GlobalStablecoins.com does not endorse the purchase, sale, or retention of any cryptocurrency by you. Please conduct your own thorough research and consult your financial advisor prior to making any investing decisions.
GlobalStablecoins.com may receive compensation for affiliate links. By utilizing an affiliate link, you acknowledge that compensation may be provided to GlobalStablecoins.com. For instance, if you click an affiliate link, sign up, and trade on an exchange, GlobalStablecoins.com could be compensated.
Before you invest in crypto assets, you should be aware of the following:
Cryptoassets are classified as high-risk, speculative investments.
If you invest in crypto assets, be prepared for the possibility of losing your entire investment.
All sponsored posts are funded by crypto projects, coin foundations, advertising agencies, PR firms, or other marketing organizations. GlobalStablecoins.com is neither a subsidiary of any marketing agency nor is it owned by any cryptocurrency or blockchain foundation.
The purpose of offering sponsored posts to our advertisers is to aid in covering the operational expenses of GlobalStablecoins.com.
If you encounter a sponsored post that you suspect is fraudulent or “scammy,” please reach out to us so we can promptly investigate the matter.
