Following the collapse of UST, stablecoins face U.K. regulation

Stablecoin issuers would be subject to the same level of Bank of England oversight as other digital payment businesses already under its purview.

The government of the United Kingdom has produced a report on how to address the financial stability risks connected with digital payment assets. The collapse of UST, once the third-largest stablecoin, earlier this month brought this event.

Her Majesty’s Treasury launched a new consultation document on Tuesday proposing to use current regulatory frameworks to assist limit the risks connected with the possible collapse of stablecoins and other digital settlement assets.

To begin, the government reaffirmed its support for cryptocurrency innovation and its aim to recognise crypto stablecoins as a form of payment under the legislation. As a result, the study says it is essential to have the right “proportionate” instruments in place “to reduce the financial stability risks that may arise if a business of systemic magnitude fails.”

Protecting customers against payment company bankruptcy of digital settlement assets is the government’s recommended remedy. Stablecoin issuers would be subject to the Bank of England’s ongoing regulatory scrutiny under the current procedures, known as Special Administration Regimes (SARs). Companies must make choices that benefit their customers and the British public, which is what these regulations aim to do.

The Financial Market Infrastructure Special Administration Regime (FMI SAR) and the Payment and E-Money Special Administration Regime are now employed to manage digital payment risks (PESAR). Government plans to legislation in favour of the FMI SAR if legislative time permits, according to the publication. There is a deadline of August 2 for comments on the idea, which is included in the report.

The collapse of Terra’s algorithmic UST stablecoin sent the crypto market into a tailspin at the start of May. As of May 9th, there had been a 50 percent drop in the UST price, which had cost investors billions of dollars as well as the corresponding LUNA token. The fall of stablecoins triggered a discussion over their safety, with authorities in the United States and throughout the globe weighing in.

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