EU and UK regulators propose new rules for stablecoin issuers

Regulators in the EU and UK have proposed new regulations for stablecoin issuers amid the growing adoption of cryptocurrencies. The EU’s banking watchdog has put forward minimum capital and liquidity requirements for stablecoin reserve assets. Meanwhile, the Bank of England and Financial Conduct Authority have unveiled plans specifically for sterling-denominated stablecoins operating in the UK.

The European Banking Authority (EBA) proposals state stablecoin issuers must be able to offer full redemptions to investors at par value. Coins backed by currencies would have to maintain a 1:1 peg. Stablecoins backed by assets like gold would only need to enable redemptions at current market prices.

The EBA also suggests liquidity stress testing with potential strengthened requirements. Banks could be exempt from liquidity rules given existing EU capital buffers. The moves aim to ensure non-bank stablecoin issuers meet the same standards as banks.

In the UK, regulators have proposed stablecoin issuers back coins with Bank of England deposits, rather than commercial banks. This follows issues when coins lost pegs after issuers held reserves at failed banks. Firms would also require the approval of a payment system operator to manage risks.

Wallet providers would have to allow redemption of coins at par value at all times under the UK plans. However, officials acknowledge secondary market fluctuations could still occur. The proposals currently only apply to sterling-denominated stablecoins.

The new EU and UK measures seek to avoid stablecoin risks seen in the past. They aim to protect consumers, prevent illicit financing and reduce threats to financial stability.