A closeup of the HM Treasury building in London.

UK Treasury proposes regulations to protect stablecoin users

This year, the U.K. government has set the lofty goal of becoming a digital currency hub. It is now proposing regulations for the digital currency industry to help it achieve this aim.

One of these proposals has just been made by the U.K. Treasury and is targeted at stablecoins. In a consultation paper published this week, Her Majesty’s Treasury stated that it recognizes the potential of stablecoins to drive innovation, but noted that they pose a threat to financial stability should systemic failures occur.

To combat this threat, the Treasury has made several policy recommendations. Most significantly, it proposes to introduce an insolvency regime for stablecoin issuers.

The Treasury says that the new rules would ensure the “continuity of services critical to the operation of the economy and access of individuals to their funds or assets.”

It will do this by allowing “administrators to take into account the return of customer funds and private keys as well as continuity of service” in the case of a stablecoin collapse.

Another proposal floated in the consultation paper is the appointment of the Financial Market Infrastructure Special Administration Regime (FMI SAR) as the primary oversight body for digital settlement assets (DSAs). The body is in charge of stablecoin issuers, wallet providers, and third-party payment providers.

The Treasury also proposed that the FMI-SAR’s mandate should be expanded to ensure that they can properly oversee insolvency cases among DSA firms.

Significantly, the proposal is coming after the Treasury revealed that it has been looking into the crash of Terra’s algorithmic stablecoin, TerraUSD (UST). At the time, Bloomberg reported that the Treasury, the Financial Conduct Authority (FCA), and other international regulators took to assess the UST fallout.

Other regulations lined up for digital assets in the UK

The Treasury’s proposal is only the latest lineup of regulations coming to the digital assets market. The country also has digital currency in its sights on the agenda for parliament this year.

The U.K.’s parliament will be debating two key legislations for digital assets, including the financial services and markets bill; and the economic crime and corporate transparency bill. The former will help establish the country as a global leader in financial services by promoting the adoption of digital assets.

The latter is a bit more controversial. The bill seeks to crack down on the illicit use of digital currencies. One of its main elements is to give regulators the power to recover digital assets used in ransomware payments. Observers have noted that it is unclear how the proposal will work.

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