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How Does the UK Regulate Stablecoins?

The crypto currency era is well underway, and with it, a variety of financial puzzles. For those investing in the likes of Bitcoin, trading is now more anonymous yet frequently volatile. There are also concerns growing at the heart of money regulation. That, of course, is a result of much crypto being completely untethered and decentralised.

It’s one of the main reasons why Stablecoins have grown so popular in recent times. But what is Stablecoin when it comes to trading, and how is the British financial system reacting to its rise?

Stablecoin: A Brief History

Stablecoin is a less volatile cryptocurrency alternative to the likes of Bitcoin and Ethereum. While traditional crypto is decentralised and unregulated, Stablecoins are tethered to commodities. For example, they may have a basis in a regional currency for ballast. This helps to ensure a fall-back and to prevent huge dips and peaks in market value.

Stablecoin has emerged as an option in many different forms over the past year or so. Some services, such as Maker, have pushed their way to the front of the niche. This particular Stablecoin provider offers a ‘lock up’ service to help ensure safer trading, albeit without fiat interference. Therefore, those traders looking for more stable crypto options may not necessarily have to deal with full regulation.

The ins and outs of Stablecoin can be pretty complex. That, of course, is why pressure has mounted upon the British system to clearly define and plan for the currencies.

The British Plan for Stablecoins

Early 2021 saw consultations arise about Stablecoin’s place in broader regulation. While news since summer has been scarce in this regard, the Bank of England has laid out its stall. Andrew Bailey, BofE Governor, has affirmed that careful considerations are a must. Bailey claims there must be a fresh model drawn up for precise, protective regulation that reflects current banking.

To the layman, discussions mean that the Bank is considering applying regulatory standards to Stablecoin akin to fiat money. Proposals drawn up and discussed in early 2021 also established that the Financial Conduct Authority may expand its remit. This, it’s suggested, may entail ‘adding’ Stablecoin to ‘e-money tokens’ as outlined by the FCA.

However, it is a complex affair. While the easy option may seem to be ‘merely’ adding Stablecoin to existing FCA guidance, means-testing is an issue. The UK must research and establish rules that allow for freedom of use while retaining some restrictions. Those interested in Stablecoins for stability will do well to pay attention to these movements!

What Happens Next?

Given a lack of significant developments beyond discussions and drafts early into 2021, the ‘jury is out’ regarding Stablecoin regulation. Regulating and protecting new assets takes time and a lot of untangling. Given the UK’s continued administrative struggles with Brexit, it may be some time before full regulation emerges.

In the meantime, Stablecoin and other crypto grow ever-popular both in the UK and abroad. There is certainly no turning back from here!

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