U.S. and U.K. see role for central banks in oversight of stablecoins.

U.S. Lawmakers Nearing Agreement on Stablecoin Regulation

The debate over stablecoin regulation largely hinges on whether to treat issuers like banks or money-market mutual funds. The bill being proffered by Waters and McHenry falls more on the side of treating them like banks, not only requiring compliance with federal supervision but also adherence to capital and liquidity rules.

Consequently, the bill would also authorize stringent requirements for the assets used to back a stablecoin. Supposedly, this will reduce the risks of destabilizing fire sales of those assets in a crisis. Other restrictions would include prohibiting non-financial companies from issuing such products and imposing a stricter separation between financial firms and tech companies.

In the U.K., 2009 Banking Act Amended to Incorporate Stablecoin Regulations

As per the bill, Her Majesty’s Treasury department will be in charge of drafting all regulations pertaining to the payment systems, issuers, and services providers of digital settlement assets (DSA).

As per the bill, the Bank of England will be in charge of establishing the rules that will regulate how DSA service providers function. Meanwhile, the FCA (Financial Conduct Authority) will be permitted to weigh in on regulations and actions that seek to foster the proper function of these entities except under specific circumstances such as those that may threaten to destabilize the UK’s financial system.

He (Chancellor Zawahi) added: “In fostering these new innovations, the Bill will also enable the creation of Financial Markets Infrastructure Sandboxes – allowing firms to test the use of new technologies and practices in financial markets, increasing efficiency, transparency and resilience of new products”.