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The FCA has laid the foundations for a new conduct and prudential regime for stablecoin issuers and custodians in two of its recent consultation papers.
The FCA has laid the foundations for a new conduct and
prudential regime for stablecoin issuers and custodians in two of
its recent consultation papers.
This briefing covers the key requirements for stablecoin
issuers in CP25/14 governing:
the creation, offer and redemption of
qualifying stablecoin
issuer disclosure requirements, and
safeguarding of backing assets
THE KE Y RE QUIREMENTS – CRE ATION, OFFER A ND DISC LOS
URES
The FCA's proposed regime centres around the core principle
that stablecoins must be stable by design. Among the FCA's key
proposals are:
an obligation to ensure stablecoins are backed 1:1 and
redeemable at par value
the creation of a statutory trust over backing assets in favour
of stablecoin holders
requirements on the composition of issuer's backing assets,
including an obligation to hold at least 5% of backing assets as
on-demand deposits
We provide an overview of some of the other key aspects of the
new regime in the next slides.
1.
CREATION
Issuers must understand and manage the risks with the
design and build of their stablecoin
Issuers must carry out a risk assessment of
their stablecoin pre-sale
2.
OFFER
Stablecoins can only be offered in exchange for money
/other qualifying stablecoins
Once issued, stablecoins must be sent immediately and
without delay to holder's blockchain address
3.
DISCLOSURES
Issuers must publish information online on
e.g.
total number of stablecoins sold, minted and offered /not
offered for sale
value of backing assets and expanded backing assets broken down
by asset type
description of technology used to support recording / storage
of data for the stablecoin
names of the third parties used by the issuer for offer,
redemption, stabilisation or safeguarding of backing assets
information on redemption rights including fees, conditions for
redemption and payment methods
4. SAFEGUARDING
Stablecoins must be backed 1:1 at all times in money or
other permitted assets
Backing assets must be segregated from own money and
assets
Issuers must appoint an independent third
party (not a group entity) to hold the backing assets
Daily reconciliations to validate stablecoins
minted and value of backing assets
Excesses and shortfalls dealt with within 1
business day
Statutory trust over backing assets for
benefit of stablecoin holders
Two types of backing asset: "core backing
assets" and "expanded backing assets".
All issuers must hold core backing assets
– short-term deposits and shortterm government debt
instruments
Expanded backing assets include e.g.
longer-term debt instruments that mature in 1+years. Additional
requirements apply.
Firms using expanded backing assets must comply with
backing assets composition ratio (BACR)
5.
REDEMPTION
Stablecoin holders must have a right to redeem at any
time and at par, irrespective of the value of backing
asset pool
Stablecoins can only be redeemed for money.
Issuers cannot accept other assets, including cryptocurrency or
other stablecoin
Redemption rights must be set out in customer
T&Cs and conditions for redemption must not be
difficult to meet
Redemption rights must be transferable to new
holders of the stablecoin
Stablecoins must be redeemed by end of business day
after receiving a 'valid request'. Rights to delay
in limited circumstances such as AML requirements.
Issuers must suspend the holder's right to
redeem in certain cases, such as where there is a threat
to the integrity of the stablecoin.
WHAT COMES NE XT?
The FCA's consultation ends on 31 July
2025, but the final rules are due in 2026.
This is so that the FCA can align the new rules with feedback
from other consultations due to be published later this year.
Once implemented, the new rules in CP25/14 will be introduced
through amendments to the FCA's Client Assets
Sourcebook (CASS) and a new Cryptoasset Sourcebook
(CRYPTO).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
