UK Government Proposes Amends to Manage Risks Associated With Failed Stablecoin Projects

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The cat­a­stroph­ic event sparked renewed effort from the glob­al reg­u­la­tors to address key inef­fi­cien­cies in the sta­ble­coin mar­ket that many con­sid­er could poten­tial­ly jeop­ar­dize finan­cial sta­bil­i­ty. The UK gov­ern­ment, for one, is intro­duc­ing mea­sures in a bid to pro­tect investors against the poten­tial col­lapse of stablecoins.

Changing Existing Legislation

In a con­sul­ta­tion paper released on Tues­day, the UK Trea­sury will focus on grant­i­ng more pow­er to the Bank of Eng­land to super­vise the admin­is­tra­tion of failed sta­ble­coin issuers of “sys­temic impor­tance.” It also includes sug­ges­tions to amend the exist­ing leg­is­la­tion to address risks asso­ci­at­ed with the pegged tokens.

The Trea­sury has revealed that it will accept respons­es on the con­sul­ta­tion until 2nd August. The objec­tive of this pro­pos­al is to bring nec­es­sary changes to UK’s exist­ing plans and ampli­fy reg­u­la­tion on sta­ble­coins. The Trea­sury said:

“Since the ini­tial com­mit­ment to reg­u­late cer­tain types of sta­ble­coins, events in cryp­to asset mar­kets have fur­ther high­light­ed the need for appro­pri­ate reg­u­la­tion to help mit­i­gate con­sumer, mar­ket integri­ty, and finan­cial sta­bil­i­ty risks.”

The new pro­pos­al will include bring­ing about changes in the Finan­cial Mar­ket Infra­struc­ture Spe­cial Admin­is­tra­tion Regime, also known as FMI SAR. The aim is to incor­po­rate the chal­lenges posed by poten­tial fail­ures of sta­ble­coin issuers that are not banks.

As per the Treasury’s plans, FMI SAR will sub­se­quent­ly trans­form into the gen­er­al default frame­work for deal­ing with failed sta­ble­coin projects. If a failed sta­ble­coin project appears to threat­en finan­cial sta­bil­i­ty, it will be able to access the nec­es­sary insol­ven­cy arrangements.

The con­sul­ta­tion paper comes on the heels of the Finan­cial Con­duct Authority’s (FCA’s) plans to address Terra’s col­lapse with the Trea­sury over the next few months.

China Signals Tighter Regulations

Terra’s crash is cur­rent­ly being seen as a “black swan” event fol­low­ing which many coun­tries are bol­ster­ing efforts for mon­i­tor­ing the mar­ket and estab­lish­ing cryp­to reg­u­la­tions. Chi­na has already imposed a blan­ket ban on cryp­tocur­ren­cy trad­ing and min­ing activ­i­ties. But the country’s pol­i­cy­mak­ers may be look­ing ahead to fur­ther tight­en their grip on the industry.

A recent­ly pub­lished arti­cle on the state-owned media out­let, the Eco­nom­ic Dai­ly, laud­ed the government’s strin­gent cryp­to law while dis­cussing Terra’s failure.

Reporter Li Hualin appre­ci­at­ed China’s efforts in avoid­ing invest­ment risks from sta­ble­coins and includ­ed a quot­ed Zhou Mao­hua, a researcher at the Chi­na Ever­bright Bank who said that the reg­u­la­to­ry agen­cies will be work­ing on the com­ple­tion of reg­u­la­to­ry short­com­ings, and estab­lish tar­get­ed reg­u­la­to­ry mea­sures to address stablecoins.

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