UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Nicky Androsov and Olga Antonova, gunnercooke llp
6. Payments and Stablecoins 6.1 Payments
6.2.3 Backing Assets Under the new stablecoin rules, there will be a strict regime governing the backing assets for UK fiat- backed stablecoins. Such assets will need to be held in a prescribed statutory trust structure, and there are strict limits on how the fiat money can be held, includ- ing requirements that funds must generally be held in deposit accounts with acceptable banks, with some provision for accepted highly liquid investments such as money market funds. Furthermore, there are strict liability provisions on stablecoin providers in terms of topping up the size of the backing assets in the event of a shortfall. UK fiat-backed stablecoins are prohibited from pass- ing interest generated from backing assets to token holders. 6.2.4 Special Considerations Currently no stablecoins are considered a systemic risk in the UK. The Bank of England has, however, proposed a strict approach towards any stablecoin that would pose a systemic risk, as such stablecoins could be subject to regulation by both the Bank of England and the FCA. This includes for example a requirement to hold 40% of backing assets as central bank deposits, and additional capital requirements. The most controversial proposal is a potential (tempo- rary) restriction on holdings of systemic stablecoins, which for individuals would be a per-coin limit of GBP20,000 and (subject to exemptions for retail busi- nesses and intermediaries servicing retail customers) for businesses a limit of GBP10 million. It is unclear how such a limit would be enforceable in practice, and worth noting that it may also only be used as a transitionary measure whilst the stablecoin moves to being properly regulated as a systemic stablecoin. 7. Tokenisation and Real-World Assets 7.1 Treatment There is no bespoke regulation of RWAs in the UK, and as such RWAs need to be considered against the existing security and crypto-asset regulatory frame- works under FSMA and (currently) the MLRs.
Payments in crypto-assets are permitted, although there is currently there is no particular regulation in this regard. Whilst this means that the simple sending of crypto-assets from one person to another is generally unregulated, there is complexity in terms of how cryp- to-assets used for payments are sold. This is because such activity is generally subject to the crypto-assets rules under the MLRs and financial promotion rules, which may not make practical sense given that they are to some extent derived from the approach taken in a securities context. The UK is, however, currently designing and imple- menting a regulatory regime for UK stablecoins, which is discussed in 6.2 Stablecoins . 6.2 Stablecoins 6.2.1 Fiat Currency and Algorithmic Stablecoins The concept of a stablecoin in the UK is defined tight- ly, so that it only applies to certain tokens backed by actual fiat currency held in deposit accounts and certain approved highly liquid types of investment. As such, an algorithmic stablecoin would not be considered a stablecoin for UK regulatory purposes, and would be treated akin to other qualifying crypto- assets such as bitcoin. 6.2.2 Stablecoin Regulation Currently, there is no defined distinction between sta- blecoins and other unregulated crypto-assets in the UK. However, UK-based fiat-backed stablecoins will in the near future fall within a bespoke UK regulatory regime. This is still being broadly determined, how- ever, involves specific rules for backing assets, which derive from a securities-type framework, and those for making payments, which derive from a payment services-type framework. UK stablecoins will also have intrinsic advantages in the UK market over other crypto-assets, for example they will not be subject to the financial promotion restriction.
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