The UK tackles stablecoins (February 2021)

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Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: On 7 January 2021, the UK government released a consultation paper that examined recent developments in Distributed Ledger Technology (DLT) and proposed an authorisation regime for stablecoins. Stablecoins have the potential to bring efficiencies to (cross-border) payments, promote financial inclusion, and facilitate the implementation of retail Central Bank Digital Currency (CBDC). The UK emerged as the third jurisdiction to single out and address stablecoins. Switzerland issued guidelines in September 2019, the EU issued regulatory proposals in September 2020, and the Financial Stability Board (FSB) provided a fundamental endorsement of stablecoins in October 2020. The UK government proposes to include stablecoins that can be reliably used for retail or wholesale transactions and that achieve a stable peg to assets such as single currency, multi currencies, or gold within the scope of the regulation. It further proposes to exclude stablecoins that achieve a stable value through algorithms that control their supply. The regulatory requirements would extend to the organisation, operation, and governance of the stablecoin arrangement. Global stablecoins would be subject to additional requirements as well. Existing cryptoasset regulation would be leveraged and extended to cover stablecoins.