The FCA has released recommendations for maintaining financial resilience in the face of impending restrictions governing cryptoasset businesses, with a particular emphasis on stablecoins.
According to the watchdog, blockchain technology gives stablecoins the ability to improve payment and settlement efficiency, especially for international transactions.
According to its planned regulations, the goal is to keep regulated stablecoins at a stable value. They also imply that consumers should get comprehensive details on the administration of the supporting assets.
David Geale, the executive director for payments and digital finance at the FCA, stated, "At the FCA, we have long supported innovation that benefits consumers and markets. Currently, the UK has very little regulation over cryptocurrency. We wish to find a balance in our support of a sector that promotes innovation and is based on trust and market integrity.
In April, the UK government released a draught bill that would bring cryptocurrency companies within the purview of the law.
Geale claims that the FCA will collaborate with the Bank of England on the forthcoming regime to ensure that the regulations governing stablecoins are crystal clear.
The deputy governor of the Bank of England for financial stability, Sarah Breeden, states: "We welcome the proposals the FCA have published as part of building the UK's stablecoin regime. The Bank of England will release a supporting consultation paper later this year for those stablecoins that plan to operate at a systemic scale, covering topics such as industry feedback on permitting some return on backing assets. We continue to collaborate closely with the FCA to maintain the integrity of the UK's stablecoin system, including how companies move between its various components.
Businesses that offer crypto custody services, which are responsible for protecting consumers' cryptocurrency, would be required by the FCA's plans to guarantee that their operations are adequately secured and accessible at all times. The measures also aim to lessen the possibility and effects of company failures across regulated businesses that are involved in the operations of issuing stablecoins and storing cryptoassets.
A recent publication from the Bank for International Settlements has highlighted the increasing blurring of the boundaries between stablecoins and conventional financial markets.
The research discovered that inflows into stablecoins lower three-month US Treasury yields by 22. 5 basis points in ten days, whereas outflows might have a greater impact, increasing yields by 68 basis points. The impacts are focused on short-term Treasury assets, with little to no spillover into longer-term maturities.
Circle (USDC) is the second largest contributor to predicted impacts, followed by Tether (USDT), considering their respective sizes.
According to the report's authors, these findings show that stablecoins have already established themselves as major players in Treasury markets. Their expansion blurs the boundaries between traditional finance and cryptocurrency, and it has implications for monetary policy, transparency of stablecoin reserves, and financial stability, particularly during times of market turmoil.
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