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

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.