Lagging stablecoin regulations threaten the UK: payment experts

The U.K. has not kept up with the U.S. and EU in regulating stablecoins, a slow pace that consultants say will leave the country out of the market, with risks that go beyond the country's status in cryptocurrency industry.

The U.K. Financial Conduct Authority's stablecoin roadmap includes a consultation period for stablecoin regulations that is set to end Thursday, with final regulations expected in 2026. That would be well after the GENIUS Act became law in the U.S. earlier this month. It's also after the stablecoin rules in the European Union's Markets in Crypto Assets, or MiCA, went into effect at the end of 2024. 

"The U.K. is at risk of becoming financially irrelevant, if they do not develop stablecoin regulations," Antony Welfare, founder and CEO of the Commercializing Blockchain Research Centre, or CBRC, a consultancy. Welfare has also worked for blockchain technology company Ripple and consulted with the U.K. government on digital assets.

What is delaying a UK stablecoin?

U.K. regulators are facing criticism for the relatively slow timing. For the U.K., which has the world's sixth largest economy, there are economic benefits to regulating stablecoins, and pitfalls for being slow, according to payment experts. 

An important aspect of a digital stablecoin is the 1:1 backing with the fiat equivalent as a reserve and the "freeing" of that stablecoin into new circulation, according to CBRC.

The effect is to open liquidity and new uses for the stablecoin, Welfare said. This subsequently boosts the country's monetary reserves, a virtual circle that could address other financial problems. 

"This would help bring new money into the country's system and help with any debt burdens that may be in place and growing," Welfare said. In the U.S., the GENIUS Act's passage has sparked a wave of banks, retailers and fintechs that are planning to launch U.S. dollar-backed stablecoins, individually or as a group.

"Bank and Institution issued stablecoins are going to be the biggest transformation of the financial industry since its inception," Welfare said. "If the U.K. continues to linger, the other countries and currencies will simply take the market. Why wait for a GBP settlement stablecoin when you can settle in U.S. dollars or euros today?" The FCA did not respond to a request for comment. 

Will the UK import stablecoins?

While the U.K. stablecoin policy does not have an equivalent of the GENIUS Act stablecoin or MiCA crypto regulation to guide stablecoin issuance, there are rules governing how U.K. banks can access existing stablecoins. 

The FCA's Principles for Businesses and the Fundamental Rules of the Prudential Regulation Authority says regulated firms must disclose any material changes in their business to the relevant regulators, according to the law firm Skadden. Any business line that uses stablecoins should be disclosed to regulators, according to Skadden. 

The Bank of England has said stablecoins pose risks that are greater than traditional bank products due to the uncertainty of the backing assets, and operations, legal, reputational and security risks. It's not the current or future lack of U.K. stablecoin regulations that will harm the British stablecoin market, but the pace, payment experts said. The U.S. and EU have beaten the U.K. to the punch.

"There will be very few international platforms that will issue stablecoins out of the U.K.," Joey Garcia, head of digital assets and chief legal officer for Xapo Bank, told American Banker. The Gibraltar-based Xapo does not issue a stablecoin, but provides financial services for digital asset clients. Garcia has also consulted on stablecoin projects. "If you are an issuer of a stablecoin in the U.S., it can be made available to someone in the U.K. So the U.K. becomes almost like an importer of stablecoins but the platforms won't base themselves there. This puts U.K. banks at a distinct disadvantage."