The UK’s Financial Conduct Authority (FCA) is taking a step closer to finalizing its stablecoin regulatory framework, announcing on Wednesday that it is seeking additional industry input to shape the new rules. The proposals aim to ensure stablecoins maintain their value and reduce the risk of failure among stablecoin issuers and crypto custody providers.
FCA Aims to Prevent Crypto Custody Failures
According to the FCA, the new rules are designed to protect consumers and prevent the kind of collapse seen with algorithmic stablecoins like TerraUSD in 2022, which wiped out billions in investor savings.
“Our proposals are focused on reducing the likelihood of failure and ensuring robust operational standards,” the FCA said.
The regulator is particularly concerned with safeguarding client assets, maintaining liquidity requirements, and ensuring transparency in stablecoin reserves.
Coordinated Effort With Bank of England
The FCA is working in tandem with the Bank of England, which will take over supervision of systemic stablecoins — those with the potential to impact the UK’s financial stability.
“For stablecoins that expect to operate at systemic scale, the Bank of England will publish a complementary consultation paper later this year,” said Sarah Breeden, Deputy Governor for Financial Stability.
The Bank of England is also considering allowing returns on stablecoin backing assets, addressing industry concerns while ensuring capital and liquidity safeguards.
Regulating Crypto: A UK-Wide Effort
The FCA has been building out its crypto regulatory regime since 2023, following the UK government’s broader efforts to position the country as a global crypto hub. So far, several discussion papers and consultations have been released, laying the foundation for future legislation.
“In support of the opportunities stablecoins present to financial services and the broader economy, we will explore adding a specific focus on stablecoins to our innovation services,” the FCA said.
What’s Next?
The FCA is actively gathering industry feedback and intends to finalize its stablecoin regime in coordination with upcoming legislation and regulatory powers from Parliament. A Bank of England consultation is expected later in 2025.
Bottom line: The UK is tightening crypto oversight to protect consumers, bolster financial stability, and foster innovation — with stablecoins and crypto custody at the core of its regulatory transformation.